reality is only those delusions that we have in common...

Saturday, November 9, 2013

week ending Nov 9

FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, November 07, 2013: Federal Reserve statistical release - Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Balance sheet lets Fed be patient on when to reduce QE: Rosengren (Reuters) - The Federal Reserve can afford to be patient in deciding when to begin scaling back its bond purchases because there will be little difference to the size of the Fed's balance sheet whether the U.S. central bank starts to taper in December or waits until April, a top Fed official said on Monday. In a familiar speech defending accommodative monetary policies, Eric Rosengren, president of the Boston Fed, said it may be appropriate to reduce the quantitative easing program when there is "compelling evidence of a sustainable recovery making satisfactory progress toward full employment." The Fed's monthly purchases of $85 billion in Treasuries and mortgage-backed securities are meant to hold down long-term interest rates and stimulate U.S. investment, hiring and economic growth in the wake of the Great Recession. Given a gradual drop in unemployment and worries over a swelling Fed balance sheet - now at a record $3.8 trillion - investors were shocked when policymakers choose not to reduce the bond purchases in September. The policymakers again stood pat last month, leaving investors guessing when they will finally move. Rosengren, a policy dove who strongly backed the decisions, highlighted data comparing two "hypothetical" approaches to quantitative easing: one in which the buying is unchanged until April 2014; and another fairly aggressive approach in which the buying is reduced to $75 billion in December, $50 billion in January, $25 billion in March, and completed altogether by April. "Start dates differing by a quarter or two would generate only relatively small changes in the overall size of the Fed's balance sheet," Rosengren said in remarks prepared for delivery at the University of Massachusetts Boston.

Fed’s Rosengren: Aggressive Policy Needed for Some Time to Come -- What is an almost certain long slog toward full employment means the U.S. central bank will need to maintain its aggressively easy-monetary policy stance for a long time to come, Federal Reserve Bank of Boston President Eric Rosengren said Monday. “Monetary policy is likely to need to remain accommodative for some time so that we can achieve full employment within a reasonable forecast horizon,” Mr. Rosengren said in the text of a speech prepared for delivery before a gathering at the University of Massachusetts Boston. “Even when the Fed eventually removes some of its accommodation, such as large-scale asset purchases, we will in my view need to leave short-term interest rates at their very low levels until there is much more [in] progress reaching full employment and the 2% inflation target,” the official said. He added “the pace at which the Fed raises rates, when that becomes appropriate, should be, in my view, quite gradual, unless the economy picks up much faster than is currently expected.” Mr. Rosengren has been one of the Fed’s most steadfast supporters of bold action to help lower unemployment and drive up growth. He spoke at a time where expectations of future Fed policy are in flux. Last week, the Federal Open Market Committee, the Fed’s monetary policy arm, decided to press forward with their $85 billion-per-month program of bond buying. Many in markets now believe the Fed could be buying bonds at the current pace until some time in early spring, although there remains a chance officials will decide to slow the pace of purchases at their meeting next month. Most central bankers think what is now a zero-percent overnight target interest rate will remain at that level until mid-2015 or so.

Fed's Bullard: Need to see "tangible evidence" inflation moving back towards 2% before Taper - St Louis Fed President James Bullard was on CNBC this morning. He made a few key points:
1) Inflation is too low, and Bullard would like to see "tangible evidence" that inflation is moving back towards the Fed's goal of 2%. (Note: This was one of the four points I mentioned yesterday for the Fed to start tapering in December).
2) Bullard thinks the Fed should mostly ignore the "bickering in Washington".  From MarketWatch: “It looks like they will be bickering in Washington for a long time to come. So I don’t think we can afford to wait until the political waters are completely calm before we decide to make a decision,” Bullard said.
3) Bullard says the October employment report will be "hard to interpret". I think we will see a sharp increase in the unemployment rate, but any increase related to the government shutdown should be unwound in the November report - so I don't think anyone will panic if the unemployment rate jumps from 7.2% to say 7.5% (since there was an obvious reason).    Payroll growth will probably be lower in October too

Fed’s Williams: Jobs Growth a Key Question for Bond-Buying Program -- Federal Reserve Bank of San Francisco chief John Williams said Tuesday a key question for him on the central bank’s $85 billion-per-month bond-buying program is whether the jobs market can continue improving without additional help from the program. Mr. Williams, speaking to reporters after a conference, said he wants to see “a pretty convincing case” that the economy can grow faster than its recent trend without additional monetary stimulus before the Fed reduces the bond-buying program, which is also known as quantitative easing, or QE. The Fed has said it will continue the bond program until the outlook for the labor market has improved “substantially.” Mr. Williams said, in his mind, there are two parts to that statement: first, how much progress has been made since the Fed launched the latest round of bond-buying more than a year ago, and, second, the extent to which the Fed can expect continued progress. On the one hand, there has been “a lot of progress” in the labor market since the Fed started its current round of bond-buying more than a year ago. “To my mind we actually have made a lot of progress over the last 13 or so months,” Mr. Williams said, pointing to the decline in the unemployment rate and general improvement in other labor market indicators relative to where they were at the start of QE. But the second element remains a question mark, he said. “The data over the last several months have kind of undermined a little bit that confidence that we are going to continue to make that kind of progress without continued monetary support,” he said.

Fed’s Pianalto: Hopes Growth Will Pick Up Soon To Allow Taper To Happen - Federal Reserve Bank of Cleveland President Sandra Pianalto said Wednesday the U.S. central bank needs to press on for now with its easy money policies while waiting for growth to pick up. “My hope is that the economic recovery will accelerate so that the [monetary policy setting Federal Open Market Committee] gains the reassurance it needs to begin winding down” its bond-buying stimulus effort, Ms. Pianalto said. But she also reiterated her warning that “we have limited experience with asset purchases so it pays to be cautious, especially in this uncertain economic environment.” Ms. Pianalto’s comments came from the text of a speech prepared for delivery in Columbus, Ohio. She isn’t currently a voting member of the FOMC. Mr. Pianalto is often looked to as a bellwether for the consensus outlook of her fellow central bankers. In her remarks, she suggested the Fed was in a sense caught between its employment and inflation mandates. She said “we have accumulated meaningful progress in labor markets” since the start of the bond-buying program.” But she noted that inflation continues to run well beneath the Fed’s 2% target. While Ms. Pianalto has been generally supportive of the Fed’s $85 billion per month program of bond-buying stimulus, she has in recent months suggested it may be time to pare back the effort amid rising concerns about the unintended consequences of a policy that is aimed at boosting markets to help drive up growth and lower unemployment. Some fear continued purchases may create new asset bubbles.

Fed’s Lockhart: Aggressive Monetary Policy Stimulus Needed for Some Time to Come - Federal Reserve Bank of Atlanta President Dennis Lockhart said Friday that central bank policy must remain very easy for some time to come, although he cautioned the exact mix of tools employed by the central bank will change over time.  The official spoke in the wake of the release of better-than-expected October hiring data. The 204,000 job-gain and slight rise in the unemployment rate to 7.3% suggested the labor market fared the government shutdown fairly well, which raised optimism that future hiring data will continue to show an economy on the mend.In this environment, Mr. Lockhart said the economy still has a lot of ground to cover, and that the Fed has a role to play in that process.“Monetary policy overall should remain very accommodative for quite some time,” Mr. Lockhart said in the text of a speech prepared for delivery before an audience at the Ole Miss Banking Symposium in Oxford, Miss. “The mix of tools we use to provide ongoing monetary stimulus may change, but any changes will not represent a fundamental shift of policy,” the central banker said.

Heading toward a Cliff - The U.S. Federal Reserve is unlikely to taper its quantitative easing in 2013. The recent improvement in the global economy is due to its surprise decision in September to not taper. The resulting return of hot money or increase in leverage for speculation boosted the economy. The market is again increasing the odds for Fed tightening. It may trigger some deleveraging, which would cool the economy again. The Fed would be forced to postpone tapering again. The Fed’s QE policy has caused a gigantic liquidity bubble in the global economy, especially in emerging economies and asset markets. The improvement in the global economy since 2008 is a bubble phenomenon, centering around the demand from bubble goods or wealth effect. Hence, real Fed tightening would prick the bubble and trigger another recession. This is why some talk of the Fed tightening could trigger the global economy to trend down. Only inflation will force the Fed to tighten. Inflation at present is mainly in emerging economies. The United States’ dysfunctional financial system is slowing monetary velocity there. It is delaying inflation. But, it is a matter of time. Inflation in the United States could come through imports and expectations. When its financial system is emboldened to lend like before the 2008 crisis, inflation will surge. As the economy is so sensitive to the Fed’s tightening, its pace will be slow, even when forced by inflation. It means that inflation will stay high and for long.

The Fed is locked in a QE prison of its own making - US policymakers are caught in a trap – a seemingly inescapable dilemma that stems directly from the massive scale of QE. Back in the spring, Ben Bernanke told the world that "tapering" would start "later this year". The Federal Reserve Chairman was indicating, in other words, that America's central bank would start to wind-down its $85bn-a-month money-printing habit by the end of 2013. Such an outcome now looks increasingly unlikely. My view, in fact, is that the Fed, could soon unleash more, not less, quantitative easing – ramping up the policy rather than tapering. Such an outcome, were it to happen, would be incredibly risky. Speeding up monetary stimulation, rather than slowing it down, could spook financial markets – and even cause a panic. Yet in recent weeks, I've heard several well-placed economists and policymakers, especially in the US, start to contemplate such action. Angst-ridden investors and politicians generally love the funny money. When the big central banks create virtual cash, it tends to end up in asset markets, giving share prices a boost – resulting in bigger City and Wall Street bonuses. The Fed and the Bank of England use the quantitative easing (QE) money to buy sub-prime junk and government debt, which also helps busted banks look less insolvent. Ministers, too, can keep borrowing thanks to newly-created money, without bond yields spiralling out of control – so allowing them to dodge the really tough fiscal decisions. Why risk short-term unpopularity when you can just reach for more QE?

Will the Fed "Taper" QE and Change "Thresholds" at the same time? -- From Jeff Cox at CNBC yesterday: Fed could be about to make a major policy change Separate papers that will be presented formally this week at an International Monetary Fund meeting suggest that the U.S. central bank should lower its target for the jobless rate before it hikes rates.  Note: The Fed has made it clear that these are "thresholds", not "targets". More from Cox:  Under current Fed thinking, the unemployment rate would have to drop to just 6.5 percent—with the inflation rate rising to 2.5 percent—before making changes in the present structure, which has the policy target rate near zero. But the research from a half-dozen Fed economists maintains the unemployment objective actually should be lowered to 6.0 percent or even 5.5 percent before it makes any moves.According to an analysis from Jan Hatzius, chief economist at Goldman Sachs, the two Fed papers actually would imply an earlier reduction of QE than planned—perhaps as soon as December—while the zero-bound interest rates could remain in place until 2017 and kept below normal into "the early 2020s." Here is more from Goldman's Hatzius:  It is hard to overstate the importance of two new Fed staff studies that will be presented at the IMF's annual research conference on November 7-8. The fact that the two most senior Board staffers in the areas of monetary policy analysis and domestic macroeconomics have simultaneously published detailed research papers on central issues of the economic and monetary policy outlook is highly unusual and noteworthy in its own right. But the content and implications of these papers are even more striking.

Fed Watch: On Lowering the Unemployment Target  -- There is much buzz over the possibility the Federal Reserve will lower the unemployment rate threshold at an upcoming FOMC meeting. See, for example, a nice summary by Jon Hilsenrath at the Wall Street Journal. To be sure, such a change was already a part of the policy discussion. From the minutes of the July FOMC meeting:Finally, the potential for clarifying or strengthening the Committee's forward guidance for the federal funds rate was discussed. In general, there was support for maintaining the current numerical thresholds in the forward guidance. A few participants expressed concern that a decision to lower the unemployment threshold could potentially lead the public to view the unemployment threshold as a policy variable that could not only be moved down but also up, thereby calling into question the credibility of the thresholds and undermining their effectiveness. Nonetheless, several participants were willing to contemplate lowering the unemployment threshold if additional accommodation were to become necessary or if the Committee wanted to adjust the mix of policy tools used to provide the appropriate level of accommodation.To a certain extent, the issue of thresholds has taken on a new urgency as a result of the tapering debate. The Fed's excellent adventure with tapering this summer indicated that they do not fully understand the transmission mechanisms of large scale asset purchases (see Federal Reserve Governor Jeremy Stein for more). That uncertainty is another reason to wind down the program, something I think the Fed has a bias toward. But the economy has been giving little room for the FOMC to maneuver. They do not want to withdraw accommodation at this point, only to limit additional accommodation. The tightening of financial conditions this summer, however, suggested that tapering is tightening.

What Fed economists are telling the FOMC - While the markets have become obsessively focused on the date at which the Fed will start to taper its asset purchases, the Fed itself, in the shape of its senior economics staff, has been thinking deeply about what the stance of monetary policy should be after tapering has ended. This is reflected in two papers to be presented to the annual IMF research conference this week by William English and David Wilcox, who have been described as two of the most important macro-economists working for the FOMC at present. At the very least, these papers warn us what the FOMC will be hearing from their staff economists in forthcoming meetings. Jan Hatzius of Goldman Sachs goes further, arguing that the papers would only have been published if their content had been broadly approved by both Chairman Ben Bernanke and by Janet Yellen. The new works take the Fed’s mainstream thinking into controversial areas which have certainly not been formally approved by the majority of the FOMC. The English paper extends the conclusions of Janet Yellen’s “optimal control speeches” in 2012, which argued for pre-committing to keep short rates “lower-for-longer” than standard monetary rules would imply. The Wilcox paper dives into the murky waters of “endogenous supply”, whereby the Fed needs to act aggressively to prevent temporary damage to US supply potential from becoming permanent. The overall message implicitly seems to accept that tapering will happen broadly on schedule, but this is offset by super-dovishness on the forward path for short rates.

Monetary policy: On escaping the zero lower bound - The Economist - THIS week's Free exchange column examines a fascinating and important new paper from economists at the Federal Reserve Board (including William English, head of the Fed's monetary-affairs division). The Fed researchers survey central banks' responses to the crisis and then focus their attention on forward guidance, and in particular on how to make it work effectively. There are some issues, you see: The authors point out the main difficulty in using talk about the future to perk up growth. For forward guidance to have any impact on the economy, markets must believe that rates will stay close to zero even as growth and inflation pick up, thus making current borrowing and investment more attractive than they otherwise would be. That puts prudent central bankers in an awkward position: to get the economy moving they must persuade markets that they will tolerate higher inflation...The problem is that central bankers have an incentive to renege on promises to allow higher inflation, rendering them less credible. Making the promise, if it is believed, should boost economic activity. But once the economy is chugging along, the temptation is to try to get the best of both worlds, by raising rates before prices go up. And if markets doubt that central banks will really embrace higher inflation, the paper argues, then expectations will not adjust and the real interest rate will not fall.

Fed Watch: 2017? - The commentary on the possibility of the Fed lowering the unemployment threshold left me a little surprised this morning. It seems that people are jumping to the conclusion that a 5.5% unemployment threshold implies that the Federal Reserve would intend to hold rates near zero until 2017. For instance, Gavyn Davies at the FT writes:Compared to previously published simulations, the new ones in the English paper are even more dovish. They imply that the first hike in short rates should be in 2017, a year later than before. More interestingly, they experiment with various thresholds that could be used to persuade the markets that the Fed really, really will keep short rates at zero, even if the economy recovers and inflation exceeds target. They conclude that the best way of doing this may be to set an unemployment threshold at 5.5 per cent, which is 1 per cent lower than the threshold currently in place, since this would produce the best mix of inflation and unemployment in the next few years. Edward Harrison agrees:In the one paper by Fed economist William English (pdf here), we see an argument for lowering the threshold for rate increases to 5.5% instead of the present 6.5%. The argument here is that the situation today requires significantly more stimulus than a Taylor rule or the current thresholds for employment and interest rates imply. Moving the thresholds would mean rates would not rise until at least 2017, according to current Fed thinking about the economy.  I think this is a misinterpretation of the paper. The 2017 date results from the optimal control analysis with policy commitment. The 5.5% threshold comes from an analysis of threshold policies that attempt to mimic optimal control outcomes

Fed Forward Guidance Proves Effective, NY Fed Research Says -- New research from the Federal Reserve Bank of New York offers a strongly positive take on the central bank’s efforts over recent years to provide ever more refined guidance about the longer run outlook for short-term interest rates. At issue is what central bankers call “forward guidance.” That’s their term of art for trying to describe the likely course of future Fed policies. Currently, Fed officials issue statements indicating under what conditions they will keep the central bank’s overnight target rate extremely low. The Fed’s policymaking Federal Open Market Committee said after its meeting last month it expects to keep the rate near zero as long as unemployment remains above 6.5%, inflation is not expected to exceed 2.5% between one and two years from now, and long-term inflation expectations remain well-anchored. Unemployment was 7.2% in September, and inflation is running well below the Fed’s target of 2%. Fed officials believe this guidance will influence the long-term rates influenced in part by market participants’ expectations of future short-term rates.“Market participants have interpreted the [Federal Open Market Committee’s] policy guidance as conveying important information about the Committee’s policy reaction function,” the paper said. New York Fed surveys of major banks show the guidance has driven these firms “to expect the Committee to wait for lower levels of unemployment for a given level of inflation before beginning to raise the target federal funds rate.”That helped create “a more accommodative policy approach aimed at supporting the economic recovery,” the paper said.

The more central bankers explain themselves, the more confused the markets get – Forward guidance“ is de rigueur in central banking circles. The thinking goes like this: By signaling their future interest rate-setting intentions, the transparency and predictability of central banks’ interest rate decisions is improved, the theory goes. By laying out clear rules for when they will hike or cut rates, or committing to a certain policy stance for a set period of time, central bankers give the markets more clarity and certainty about the future path of interest rates. The markets hate uncertainty, we are always told, so the introduction of forward guidance by the US Federal Reserve, European Central Bank and Bank of England over the past year should usher in a new era of stability and predictability in financial markets. Why, then, have we seen two rather spectacular surprises in monetary policy decisions over the past two months? In September, the Fed caught the markets off guard when it decided not to taper its purchases of US treasury bonds. Today the ECB wrong-footed investors by cutting its main benchmark interest rate when most analysts expected it to stay put. In both cases, bond and currency markets reacted violently to the announcements, suggesting that portfolios were not well positioned for what Fed chair Bernanke and ECB head Draghi eventually said.

GS: QE’s portfolio rebalancing effect has been underestimated - One of the key findings from the Jackson Hole paper by Arvind Krishnamurthy and Annette Vissing-Jorgensen is that the Fed’s US Treasury purchases “significantly raised Treasury bond prices, but have had limited spillover effects for private sector bond yields, and thus limited economic benefits”. An interesting recent note from Jesse Edgerton of Goldman Sachs calls into question one part of the methodological approach used in the paper to arrive at this finding. Specifically, Edgerton writes that Krishnamurthy and Vissing-Jorgensen drew their conclusion based on fluctuations in corporate bond indices that “are poorly suited to measure market movements in the 1- or 2-day windows on which they focus”.  The conclusion from Edgerton’s note, which we excerpt below, is that “stale pricing data have caused prior authors to underestimate the short-run effects of QE announcements on corporate bond yields”. Portfolio rebalancing isn’t the only channel through which QE works. And as we have discussed at length on Alphaville, any honest attempt to weigh the comprehensive benefits and costs of QE is a multilayered and incredibly tricky undertaking. It can’t be done with precision.In other words, a dispute about the the proper way to measure the effect of the portfolio rebalancing channel represents the kind of debate of which we can expect many, many more for a long time to come.

Has QE Stimulated Credit? - Yves Smith - As much as the post below is a very useful recap of data in terms of the impact of QE, I need to hector “Unconventional Economist” for being pretty conventional. His headline question, whether intentionally or not, reinforces the notion that it was reasonable to think that QE, or super low rates generally (as in ZIRP) would lead to increase lending. That’s based on a view that is very popular among neoclassical economists, which is that everything can be solved by price. It follow that if you put credit on sale, companies and individuals will consume more credit, that is, borrow more, and will therefore go out and spend more, which will produce more growth. The more formal name for that sort of thinking is the “loanable funds” theory. It was debunked more than 70 years ago by Keynes but refuses to die.  The barrier to small business lending isn’t the economics; it’s that most banks no longer have that skill. I’m not making that up. In the stone ages of my youth, all the big banks (and the industry was less concentrated, so there were more “big banks” back then) had two year credit officer training programs. Those credit officers would do the analysis and make recommendations on big corporate loans. Some would eventually become branch managers, and way back then, branch managers would have the authority to approve loans up to a certain level. They used not only their formal analytical skills, but also local information about the health of the economy, the reputation and stability of important local businesses. If the local hardware store owner came in looking for a loan to expand, the branch manager would have an informed view on whether his estimates of how much and how fast his top line would increase after his build-out. He’d even probably know if his cost assumptions were realistic based on prior experience.

A Tale of Two Fed Presidents - Paul Krugman -- Props to Jeffrey Lacker, the president of the Richmond Fed, for admitting that he has been wrong so far about inflation. Indeed he has: Lacker has been warning about inflationary dangers for more than five years. Still, given the behavior of so many interest rate and inflation hawks in this Lesser Depression — the norm seems to be never even acknowledging the wrong predictions, or trying to rewrite what they said in the past — Lacker’s frank confession of error is refreshing.But — there had to be a but, right? — Lacker still seems unwilling to consider the possibility that his underlying model was wrong. Instead, he suggests that special factors — the puzzling stability of inflation expectations, in his case — have somehow, and presumably temporarily, thrown things off. For more than five years! But then, consider people like Martin Feldstein, who argue that all their dire warnings were wrong because the Fed is paying one-quarter percent, that’s right, one-quarter percent interest on reserves. There’s an interesting contrast with one of the real intellectual heroes here, Narayana Kocherlakota of the Minneapolis Fed, who has actually reconsidered his views in the light of overwhelming evidence. In our political culture, this kind of switch is all too often made into an occasion for gotchas: you used to say that, now you say this. But learning from experience is a good thing, not a sign of weakness.

Kohn: Central Banks Can’t Stop Bubbles -- Central banks can’t stop bubbles forming in house prices or financial markets but can use new powers to try to ensure they don’t cause widespread harm, a former Federal Reserve official who now sits on the Bank of England‘s financial stability panel said Wednesday. Donald Kohn, vice-chairman of the Fed between 2006 and 2010 and a member of the U.K. central bank’s Financial Policy Committee, said in a speech that the rise and fall of asset prices and the ebb and flow of financial activity will continue for as long as people participate in markets. “Financial cycles, imbalances and asset bubbles will persist. It is human nature to become overly optimistic and pessimistic, to go through cycles of greed and fear,” Mr. Kohn said in an address in Oxford, England, according to a text of his remarks. The BOE’s FPC, one of a new breed of “macro prudential” supervisors charged with safeguarding the stability of the financial system, won’t seek to “micro manage” these cycles, but will instead focus its efforts on ensuring the financial system and the wider economy can withstand any losses they may cause, Mr. Kohn said. The committee’s tools include broad powers to set capital requirements for particular types of bank lending or for the banking system as a whole. “In my view, just how much changing macro prudential policies can damp many asset price and credit cycles is an open question,” he said.

Stockman: Brace for the mother of all bubbles - “How could someone in their right mind believe that you can have interest rates that drive the whole short end of the money market at zero for nine years?…That is the greatest gift to the speculators, to the 1 percent, to the leveraged traders, to the carry trade ever imagined; it will totally distort markets and create unimaginable bubbles if you keep that up. We’re almost on the edge of another explosion at the present time.” “We’re at the fourth bubble inflated by the Fed in this century…Now, I think, we have the greatest, mother of all bubbles. There’s no one in the stock market today except drugged up day-traders and robots…This is utterly irrational.” 

Inflation, deflation and QE, redux - I've suggested previously that QE could actually be deflationary. I looked at it from several perspectives - collateral effects, the monetary transmission mechanism, distributive effects, even Peter Stella's "deadwood" inhibiting bank lending. But I have to admit that the evidence in support of my deflationary hypothesis was thin and the case not proven. All I could demonstrate was that QE is not directly inflationary and whatever stimulative effect it has is weak at best.  Until now, that is. Soc Gen have looked at QE.....and they have concluded that its effects may indeed be deflationary. Their reasoning is somewhat different from mine. Here's their argument:In theory, a permanent increase in money supply results in a proportional increase in all money prices. Central bank asset purchases boost money supply, but this “inflationary” impact of QE is only temporary as the assets are in the future set to either be sold to private investors or redeemed to central banks, thus exerting a “deflationary” impact. For QE to be efficient, this argument would thus suggest that central banks (Fed, BoE, BoJ … and even the ECB!) should simply forgive their considerable holdings of debt (mainly government debt) thus making the increase in base money permanent. In the case of the US, cancelling the $2tn of Treasuries held by the Fed would also offer a quick fix to the debt ceiling issue.This somewhat tongue-in-check argument merits qualification. Indeed, there is base money and then there is broader money aggregates. While QE has boosted the former, the impact on the later has been modest to date due to still lacklustre credit channels. This ties in with our long-held view that the key to sustainable recovery lies with corporates regaining sufficient confidence to borrow, to invest and to hire (and not to swap equity for debt via share buybacks).

Why (and when) interest-on-reserves matters… - Paul Krugman writes: Some people argue that the concept of the monetary base has lost its relevance now that the Fed pays (trivial) interest on reserves. I disagree. Reserves and currency are fungible: banks can turn one into the other at will. But the total of reserves and currency is fixed by the Fed — nobody else can create either. That, as I see it, makes them a relevant aggregate — and anyone who believes that all those reserves are sitting idle because of that 25 basis point reward is (a) silly (b) ignorant of Japan’s experience, where the BOJ sharply increased the monetary base without paying interest on reserves, and what happened looked exactly like our own later experience. I think that Krugman is mischaracterizing the view he is arguing with. I’m not sure he would even argue with the view properly characterized. I certainly agree with Krugman that those 25 basis points have a pretty negligible macroeconomic effect now. The view of people who think that interest-on-reserves permanently diminishes the macroeconomic meaning of base money is contingent on a conjecture that, henceforth, the Fed will always pay interest-on-reserves at a rate comparable to the rate paid by short-term US Treasury securities. If that conjecture is false, then the quantity base money will someday matter again.In either case, the quantity of base money that exists right now is largely meaningless , and would be meaningless if the Fed were not paying any interest on reserves, because Treasury rates are near zero. This is Krugman’s liquidity trap, an effect of the negative unnatural rate of interest.

The Great Recession may have crushed America’s economic potential - The title of a new paper from three economists at the Federal Reserve is bloodless: "Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy". But its conclusions are chilling.The paper offers a depressing portrait of where the economy stands nearly six years after the onset of recession, and amounts to a damning indictment of U.S. policymakers. Their upshot: The United States's long-term economic potential has been diminished by the fact that policymakers have not done more to put people back to work quickly. Our national economic potential is now a whopping 7 percent below where it was heading at the pre-2007 trajectory, the authors find. As they sum up in their abstract, “The recent financial crisis and ensuing recession appear to have put the productive capacity of the economy on a lower and shallower trajectory than the one that seemed to be in place prior to 2007.” What seems to be happening, they argue, is that people who lost their jobs in the recession have now been out of work for years, leading their skills to atrophy and them to become less attached to the workforce. As those workers’ productive capacity diminishes, so does the total potential of the U.S. economy.

Has the U.S. Economy Been Permanently Damaged? - Friday’s employment report, which shows that payrolls rose by two hundred and four thousand jobs in October, indicates that the economy was a bit stronger in the past three months than most people thought. But we won’t know the full impact of the government shutdown and the debt-ceiling crisis for a while yet, and it is fanciful to suggest that one better-than-expected jobs report will persuade the Federal Reserve to change course and start withdrawing some of its monetary stimulus.  Trying to sort the signals from the noise in the jobs report is a tough task in the best of times: the margin of error for the payroll figures is plus or minus ninety thousand jobs. So instead I’ll say a few things about a new research paper by three economists at the Federal Reserve, which is getting a lot of attention because it suggests that the recession and its aftermath have not only done terrible things to the U.S. economy in the immediate sense—high rates of joblessness, tepid gross-domestic-product growth, falling incomes—but also seriously undermined the economy’s capacity for future growth. Gavyn Davies, of the Financial Times, drew attention to the study earlier this week; Reuters published a story about it; and, in today’s New York Times, Paul Krugman devoted an entire Op-Ed to it, which was perfectly justified. It deserves to be discussed widely.

How Washington Is Wrecking the Future, in 2 Charts - The era of trillion dollar deficits is over. The era of deficient investment is here. Rand Paul may not have noticed, but we've actually cut quite a bit of spending the past three years. Unfortunately, though, we've only cut quite a bit of the best kind of spending. Things like infrastructure, schools, and scientific research. The kind of things the economy needs to grow, but the private sector won't invest enough in. In fact, we've cut more than just a bit. We've cut so much that, as the Financial Times points out, public investment is at its lowest level since the demobilization following World War II in 1947. And if you account for the disinvestment from roads and bridges decaying, net investment has barely been positive. You can see just how historically low overall investment (red) and net investment (blue) have been in the chart below, also from the Financial Times. See, even without the deliberately stupid sequester cuts, non-defense discretionary spending would be headed for a 40-year low.

Primary coincident economic indicators for September continue to show slow growth - For four years, there has been a brand of pundit I mock as "Doomers." These are the people who, week after week and month after month have written long-winded, persuasive sounding epistles, usually accomplanied by whatever data point is pointing south now, explaining that the economy is nowhere near growing, or never adding jobs, or heading for a double dip, a triple dip, or whatever dip it is going to be next. When the eonomy doesn't cooperate, or last month's sure-fire negative indicator improves, it is lost to the memory hole and on to the next sure harbinger of DDOM! we go.  Meanwhile those of us who are just boring nerds keep our eyes focused on the data, operating under the theory that it is far more likely than not, that it's not different this time, and that data has consistently told a story of slow but steady improvement.  September brought us more of the same. Typically the NBER looks at four sets of data -- production, jobs, sales, and income -- to decide if the economy is in a recession or expansion. Two of those -- sales and income - have already surpassed their pre-recession peaks. This month a third -- industrial production -- moved wtihin 1% of its prior high.  Here's what the four primary coincident indicators of the economy look like as of their last report.

Conference Board Leading Economic Index: Third Month of Growth - The Latest Conference Board Leading Economic Index (LEI) for September was released this morning. The index rose to 0.7 percent to 97.1 percent from the previous month's 96.4, a slight downward revision from 96.6 (2004 = 100). has forecast a 0.6 percent increase.Here first is an overview of today's release from the LEI technical notes:The Conference Board LEI for the U.S. increased for the third consecutive month in September. Improvement in the LEI was driven by positive contributions from the financial indicators, initial claims for unemployment and new orders. In the six-month period ending September 2013, the leading economic index increased 3.0 percent (about a 6.0 percent annual rate), much faster than the growth of 1.2 percent (about a 2.4 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators have become more widespread than the weaknesses.   [Full notes  Here is a chart of the LEI series with documented recessions as identified by the NBER.  And here is a closer look at this indicator since 2000. We can more readily see that the recovery from the 2000 trough weakened in 2012 but began trending higher in the latter part of the year.

US economy surprisingly grows at 2.8 percent annual rate over summer, best showing in a year — The U.S. economy expanded at a 2.8 percent annual rate from July through September, a surprising sign of strength ahead of the 16-day partial government shutdown. Exports rose, businesses stocked up, home construction increased and state and local governments spent at the fastest pace in four years. The Commerce Department says growth increased from a 2.5 percent annual rate in the April-June period to the fastest pace in a year.Consumers stepped up spending on goods. But overall spending weakened from the second quarter because service spending was essentially flat, in part because of a cooler summer that lowered utility spending. The third-quarter outcome was nearly a full percentage point stronger than most economists had predicted. Analysts expect the shutdown will slow growth in the October-December quarter.

Economy in U.S. Expands at a 2.8% Rate on Inventories - The economy in the U.S. expanded in the third quarter at a faster pace than forecast, led by the biggest increase in inventories in more than a year as household purchases and business investment slowed. Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent gain the prior three months, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011. The biggest gain in inventories since the first three months of 2012 risks holding back production in the current quarter, which began with a 16-day partial shutdown of the federal government. Jobs data tomorrow are projected to show hiring slowed in October, helping explain why Federal Reserve policy makers are pressing on with stimulus.Estimates of the 87 economists surveyed for third-quarter GDP, the value of all goods and services produced, ranged from 1.2 percent to 3 percent. The data, initially slated for release on Oct. 30, were delayed by the government shutdown.

U.S. Economic Growth Beat Expectations in Third Quarter - The American economy grew at an annual rate of 2.8 percent in the third quarter, significantly better than economists had expected and the fastest pace this year. The Commerce Department report had originally been scheduled to come out on Oct. 30, but was delayed by the government shutdown last month. Economists surveyed by Bloomberg News had estimated an annual growth rate of 2 percent in the third quarter, but that forecast had been drifting lower recently. At 2.8 percent, the government’s first estimate of gross domestic product over the course of July, August and September followed growth rates of 1.1 percent in the first quarter of the year and 2.5 percent in the second quarter. The G.D.P. report showed that imports dropped in the third quarter, and the improved trade balance along with rising inventories lifted growth overall. Many experts have blamed the economy’s lukewarm performance recently on what they term the “fiscal drag” coming from Washington, mainly across-the-board spending cuts imposed by Congress as well as tax increases that went into effect at the beginning of the year. Indeed, that headwind is expected to persist into the current quarter, and it could be exacerbated by the partial shutdown, which began on Oct. 1 and lasted 16 days. Economists estimate output will increase at an annual rate of 2.4 percent in October, November and December, but the full impact of the shutdown remains a wild card.

Q3 GDP Delivers An Upside Surprise - The US economy picked up speed in the third quarter, or so today’s initial estimate of Q3 GDP shows. The economy expanded by 2.8% in the three months through September vs. the previous quarter, based on a seasonally adjusted annualized real rate. That’s quite a bit better than the consensus forecast of 2.0% and The Capital Spectator’s 2.1% average econometric nowcast. The faster pace of growth in Q3 was driven largely by “a deceleration in imports and accelerations in private inventory investment and in state and local government spending,” according to the Bureau of Economic Analysis. But it’s unclear if this is a sign that the economic growth will continue to improve. For one thing, consumer spending remains tepid, according to today’s report. Still, it’s hard to argue that the economy is slowing via the data du jour. In a separately released report today, new filings for jobless benefits dropped again last week. Overall, today’s news reinforces the message that the economy continues to grow at a moderate pace with minimal signs of distress on the immediate horizon.  It’s encouraging to see positive comparisons in all the major components in today’s GDP report. But it’s also worth noting that personal consumption expenditures rose a tepid 1.5% in Q3—the slowest pace in more than two years. Most of the slowdown in consumer spending was due to a sharp drop in services-related spending, which slowed to a crawl with a scant uptick of 0.1%, which is the smallest quarterly gain since the Great Recession ended in Q2 2009. The good news is that some of the slower spending on services was offset by higher consumption in goods. The quarterly comparison shows that spending on goods advanced 4.3% in Q3, the best gain since 2012’s first quarter. Another bright spot: investment overall gained 9.5% in Q3, up a bit from 9.2% in the previous quarter and the highest rate since the first three months of 2012.

2013Q3 GDP Release: First Impressions -- An upside surprise to this AMs GDP report–up 2.8% over the quarter (at an annualized rate), when expectations were for 2%.The source of the acceleration is largely from the volatile inventory sector, so I wouldn’t read too much into it.  Given generally tepid consumer and (non-residential) investor demand, both of which were pretty blah in today’s report, and the continued fiscal drag from the federal government (which will be worse in Q4 as per the shutdown), it’s not a slam dunk that firms are really building up their inventories, though exports outpaced imports, so perhaps there’s something there.  (For you statistical mavens, the inventory growth component to the GDP accounts is a change in a change, so it’s always a lot more noisy than other components.) Final sales, which excludes the inventory buildup, posted the expected 2% pop, and those who know my methods know I prefer to filter out some of the quarter-to-quarter noise by plotting year-over-year quarterly changes.  The figure below shows that by this metric, the growth slog continues, with real GDP up 1.6% for the last two quarters, a deceleration from rates we were posting a year ago, and below the growth rate needed to drive faster job growth and reduced unemployment. So, one certainly welcomes this Q3 acceleration, but let’s see if it sticks.

GDP Q3 Advance Estimate Rises to 2.8% - The Advance Estimate for Q3 GDP, to one decimal, rose to 2.8 percent from the 2.5 percent in the Q2 Third Estimate. had forecast 2.0 percent. The GDP deflator used to calculate real (inflation-adjusted) GDP rose substantially from 0.6 percent to 1.9 percent. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.5 percent.  The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision. The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.  The acceleration in real GDP growth in the third quarter primarily reflected a deceleration in imports and accelerations in private inventory investment and in state and local government spending that were partly offset by decelerations in exports, in nonresidential fixed investment, and in PCE.  The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.8 percent in the third quarter, compared with an increase of 0.2 percent in the second. Excluding food and energy prices, the price index for gross domestic purchases increased 1.5 percent in the third quarter, compared with an increase of 0.8 percent in the second. [Full ReleaseHere is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

GDP 2.8% for Q3 2013 - Q3 2013 real GDP came in at 2.8%  Changes in business inventories saved the day as did less of an increase in imports.  Fixed investment also increased.   Government spending declines were about the same as Q2, yet local governments increased spending.  Consumer spending was less growth than Q2, only about 37% of this quarter's GDP.  Generally speaking, don't expect a 2.8% Q3 GDP to last as it is common for imports especially to be revised as more trade data comes in.  Another factor to consider is the sharp jump in the price index which is used to remove inflation from the GDP figures.  Q2 GDP was 2.5%. As a reminder, GDP is made up of: Y= C+I+G+(X-M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the percentage point spread breakdown from Q2 to Q3 GDP major components.  GDP percentage point component contributions are calculated individually. Consumer spending, C in our GDP equation, shows less growth than Q2.  In terms of percentage changes, real consumer spending increased 1.5% in Q3 in comparison to a 1.8% increase in Q2.  Most of consumer spending, was in goods, which added 99 percentage points to GDP growth contribution.  Services within consumer spending only added 0.05 percentage points to GDP with housing and utilities subtracting -0.28 percentage points. .  Below is a percentage change graph in real consumer spending going back to 2000.

U.S. economy continues moderate growth - Yesterday the BEA finally reported GDP numbers for the third quarter, a month later than originally scheduled owing to the earlier shut-down of federal operations. The U.S. economy is estimated to have grown at an annual rate of 2.8%. That's below the historical average, but better than the previous three quarters. The gradual improvement in the growth rate has brought our Econbrowser Recession Indicator Index back down to 12.4%. The weak performance earlier this year had led to a moderate spike in this summary statistic, though far from the 67% threshold at which we would declare that the economy had entered a new recession. Note that in calculating this index we allow one quarter for data revision and trend recognition. Thus the latest value, although it uses the GDP numbers released yesterday, is actually an assessment of the state of the economy as of the end of 2013:Q2. However, our index is never revised, so that the numbers plotted in the graph below since 2005 are exactly the values as they were reported one quarter after each indicated historical date on Econbrowser. In terms of the individual components of GDP, 0.83 percentage points of the 2.8% total came from inventory rebuilding-- real final sales were up at less than a 2% rate. Another 0.8 percentage points of the improvement over the second quarter came from a reported decline in imports, a number that is particularly subject to revision. But despite the government shutdown in September, the fiscal drag that showed up in the 2012:Q4-2013:Q1 figures has disappeared. In addition, housing continues to make a modest positive contribution.

US Economic Growth Rises to 2.8 Percent in Q3; GDP-Based Inflation Indicators Remain Below Target - Today’s advance estimate from the Bureau of Economic Analysis showed U.S. real GDP growing at a 2.8 percent annual rate in the third quarter of 2013, the fastest growth reported since early 2012. The estimate, which reflects economic activity from June through September, was not directly affected by October’s government shutdown, although the data release itself was somewhat delayed. In addition to the growth estimates, the report includes a set of inflation indicators drawn from the national income accounts. These showed that inflation remained below the Fed’s 2 percent inflation target. The advance estimate, which the BEA bases on data from early in the quarter and extrapolations for later months, is subject to significant revision. For example, the advance estimate for Q2 was 1.7 percent. In the third and most recent estimate for the quarter, that was raised to 2.5 percent. Details of the latest report indicate that some sectors of the economy were stronger than in Q2 and others weaker. As the following table shows, personal consumption expenditure, the single largest sector of the economy, contributed just 1.04 percentage points to Q3 growth compared to 1.24 percentage points in Q2. The contribution from gross private domestic investment was a bit stronger than in Q2, although the increase was entirely due to a faster rate of inventory accumulation. For only the fourth quarter in the past three years, the government sector made a positive contribution to growth. The government contribution to GDP growth is measured by “government consumption expenditure and gross investment,” an indicator that includes purchases of goods and services by units of government at all levels and salaries of all government employees, but excludes transfer payments like Social Security and unemployment benefits. The positive contribution of government to GDP growth was entirely due to stronger performance of state and local government. The federal government contribution to GDP growth was negative, as it has been in most recent quarters.

Q3 GDP Roars To 2.8% Despite Weakest Consumer In Over Two Years -- A day of fireworks that started with the stunner by Goldman's head of the ECB has just gotten its second wind following the preliminary announcement of Q3 GDP, which roared from 2.5% to 2.84%, far above expectations of a 2.0% annualized number.  On the surface this was a bad number for Taper watchers, as it may mean the Fed will actually have to moderate its monthly flow precisely at the time when the ECB was forced to do "whatever it takes" in its fight with inflation, however a quick look at the internals shows that once again there is much more than meets the eye: because while the headline print was the strongest since Q3 2012, the core driver of economic growth, Personal Consumption, grew 1.5% below the expected 1.6%. Specifically, of the 2.84% number, PCE was just 1.04%, the lowest since Q2 2011!  Elsewhere, fixed investment - an indication of capex -  was just 0.63%, below the 0.96% reported last quarter. So what drove "growth"? Why the traditional hollow component: Inventory, which amounted to 0.83% of the 2.8% print, double the 0.41% in the prior quarter. Net trade added an additional 0.3%, and finally government ticked on a modest 0.04% - the first positive contribution since Q3 2013.

How GDP Report Shows Government Dragging on Growth - Thursday’s report on U.S. gross domestic product in the third quarter sheds new light on the drag U.S. fiscal policy has exerted on the economy in the past year. It underscored how much better the private sector is doing compared with government. Consider these factoids (all based on inflation-adjusted figures):

  • –In the third quarter, government consumption was 2.8% smaller than it was a year earlier, thanks largely to federal government spending cuts.
  • –Overall gross domestic product during that period was up 1.6%.
  • –The private sector of the economy expanded by 2.7% in the third quarter compared to a year earlier. That suggests the decline in government spending pulled more than a percentage point out of the overall growth rate. That doesn’t count the hit to consumer spending that might have resulted from tax increases earlier in the year. Consumer spending slowed from a 2.2% year-on-year increase in the third quarter of 2012 to a 1.8% year-on-year increase in the third quarter this year.

In short, fiscal policy has been a sizeable drag on economic growth in the past year and looking past this the economy appears to be on more solid footing. This points to the stark choices lawmakers and the White House face as they enter the next stage of negotiations about the government’s budget. The “sequester,” the across-the-board cuts in federal discretionary spending that began in March, is about to get a bit tighter. Some Republicans want to replace the sequester cuts scheduled to take effect in January with long-run reductions to entitlement spending. Democrats want to replace the cuts with tax increases or other measures to raise revenue. Neither side is talking about reversing the cuts that have already taken effect.

Vital Signs: Solid GDP Rate Masks Shaky Details - Third-quarter real gross domestic product beat expectations, posting a 2.8% annualized rate of growth. But the strong top-line number hides weaker details underneath. That’s because a large share of third-quarter economic activity came from inventory building, which contributed 0.83 percentage points to GDP growth. Real final sales—GDP less inventories—grew a more modest 2.0%. Consumer spending slowed last quarter and businesses cut back on their investment on equipment. It’s not a one-quarter phenomenon: final sales growth lagged GDP increases in each of 2013’s first three quarters. Inventory accumulation is not a problem as long as demand picks up. Friday’s payrolls report should show whether October job and wage growth was strong enough to put consumers back in a spending mood.

Q3 GDP: Growth slightly above Expectations, but Weak Personal consumption: The advance Q3 GDP report, with 2.8% annualized growth, was above expectations.  However some of the details were weak. Personal consumption expenditures (PCE) increased at a 1.5% annualized rate - the slowest rate since Q2 2011.  "Change in private inventories" added 0.83 percentage points to GDP in Q3.  This was above expectations of a 2.0% growth rate, but mostly because of inventories. It appears that the drag from state and local governments has ended, although the drag from Federal government spending is ongoing.  The Federal government subtracted 0.13 percentage points in Q3, whereas state and local governments added 0.17 percentage points. Residential investment (RI) remains a bright spot (increasing at a 14.6% annualized rate), and RI as a percent of GDP is still very low - and I expect RI to continue to increase over the next few years. ... I expect state and local governments to continue to make small positive contributions to GDP going forward. ... The key story is that residential investment is continuing to increase, and I expect this to continue. Since RI is the best leading indicator for the economy, this suggests no recession in the near future (with the usual caveats about Congress). Finally, real GDP has increased only 1.6% over the last year (Q3 2012 to Q3 2013). Because GDP growth was very weak in Q4 2012, it will only take 1.5% annualized growth in Q4 to reach the lower end of the Fed's GDP target.

Visualizing GDP: The Consumer Is Key, But Slipping - The chart below is my way to visualize real GDP change since 2007. I've used a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics:The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP growth in the third quarter primarily reflected a deceleration in imports and accelerations in private inventory investment and in state and local government spending that were partly offset by decelerations in exports, in nonresidential fixed investment, and in PCE.  Let's take a closer look at the contributions of GDP of the four major subcomponents. My data source for this chart is the Excel file accompanying the BEA's latest GDP news release (see the links in the right column). Over the time frame of this chart, the Personal Consumption Expenditures (PCE) component has shown the most consistent correlation with real GDP itself. When PCE has been positive, GDP has usually been positive, and vice versa. In the latest GDP data, the contribution of PCE came at 1.04 of the 2.85 real GDP. Although real GDP is at its highest compounded annual rate of change in six quarters, the contribution from PCE has dropped for the second consecutive quarter.

Goldman Cuts Q4 GDP Forecast To 1.5% From 2.0% On Q3 Inventory Buildup - What inventory boosts give in the current quarter, inventory lack of boosts take from future quarters. At least that is what Goldman's Jan Hatzius just stated in his note summarizing not only the just released Q3 GDP, but his first Q4 tracking forecast, which he cut from 2.0% to 1.5%.To wit:BOTTOM LINE: GDP grew more quickly than expected in Q3, but the surprise came mainly from a larger-than-expected inventory contribution and a smaller-than-expected decline in government spending. Consumer spending and business fixed investment were less strong. Initial jobless claims declined as expected with no special distortions noted by the Labor Department. We started our Q4 GDP tracking estimate at 1.5%.

  • GDP grew at a faster-than-expected 2.8% rate in Q3 (vs. consensus +2.0%). Personal consumption expenditures?the largest component of GDP?rose a modest 1.5% (vs consensus +1.6%), with strong growth in goods consumption offset by meager growth in services consumption. Business fixed investment increased at a disappointing 1.6% rate, with a 3.7% decline in equipment investment. Offsetting slightly disappointing PCE growth and sluggish business fixed investment, inventory accumulation contributed eight-tenths to headline growth, while federal government spending posted a smaller-than-expected 1.7% decline. In addition, residential investment - which reflects new construction with a lag - rose a solid 14.6%. Stripping out the contribution from inventory investment, real final sales increased at a moderate 2.0% pace.
  • In light of the composition of Q3 growth?driven by a substantial boost from inventories and a smaller-than-expected decline in government spending, we started our Q4 tracking at 1.5%, five-tenths below our prior assumption of 2.0%. Inventory investment tends to subtract from growth following quarters showing a positive contribution, while we expect the smaller-than-expected decline in Q3 government spending to result in even weaker Q4 spending than we had anticipated.

Three Key Indicators Say U.S. Economy in Trouble: The mainstream and politicians tell us the "wounds" of the financial crisis are over and the U.S. economy is in recovery mode. This simply isn't true. A few of the key indicators I follow to see where an economy stands are personal income, consumer demand, and businesses' activity. All three of these indicators are telling me the U.S. economy is definitely going in the wrong direction.First of all, the income gap in the U.S. economy continues to grow. The top earners make more, while the lowest income earners make less. According to the Wage Statistic from Social Security, in 2012, 23 million of the lowest wage earners earned a total of $47.0 billion in the U.S. economy. But those who earned $10.0 million or more annually in the year 2012 earned $64.3 billion! Here comes the kicker: there were only 2,915 wage earners in this category in the U.S. economy last year. Yes, you read that right. Less than 3,000 people cumulatively made more than 23 million people.Next, American consumers are pulling back on their spending -- something that's not supposed to happen when an economy is recovering. One indicator of consumer demand I follow is the build-up of wholesale inventories. When business inventories build up, it suggests companies are storing more of the goods they produce because they are selling less to consumers.In August, wholesale inventories in the U.S. economy reached $503 billion, up 2.5% from August of last year. Inventories of motor vehicles and motor vehicle parts increased 2.4% in just one month! (Source: United States Census Bureau, October 25, 2013.) Finally, businesses in the U.S. economy are worried...

The Mutilated Economy, by Paul Krugman -- Five years and eleven months have now passed since the U.S. economy entered recession.  Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment — the number of people who have been out of work for six months or more — is four times what it was before the recession.  These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools.  The bitter irony, then, is that it turns out that by failing to address unemployment, we have, in fact, been sacrificing the future, too. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come. Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them.  I’m actually writing this from the big research conference held each year by the International Monetary Fund.  It’s pretty clear that the blockbuster paper of the conference will be one that focuses on the truly ugly: the evidence that by tolerating high unemployment we have inflicted huge damage on our long-run prospects.

When Is the Next Financial Crisis? Economic Officials Past and Present Weigh In - The International Monetary Fund held a research conference this week in Washington focused on financial crises past and present. Some of the talk was about financial crises of the future. The culminating panel featured an illustrious set of economists, including Federal Reserve Chairman Ben Bernanke, who were asked to reflect on the most recent crisis and what lessons have been learned from it. Stanley Fischer, who recently stepped down as governor of the Bank of Israel and who was honored at the conference, said it’s important to keep in mind what matters most: It’s hard to be sure all the post-crisis reforms will better protect against a crisis next time around until they are tested by reality. For his part, Lawrence Summers doesn’t think the test is coming very soon. Some combination of complacency and euphoria has preceded all the major financial crises of the past, including the one that struck in 2008, he observed. “It feels to me like we’re a way away from complacency and euphoria,” said Mr. Summers. “In the global economy are there more problems of under-confidence or overconfidence?” he asked. “I think that’s easy… I can point to some problems of over confidence but it seems to me that there are many more problems of under-confidence than there are of overconfidence,” Mr. Summers said. “So I think it’s going to be awhile, quite awhile before we have another financial crisis that will fit” the pattern of the 2008 crisis, and others such as Japan in the late 1980s or the Great Depression. “I think those type of crises are a long time off.” But before you start feeling too good about that, Mr. Summers suggested a new crisis may be far off because we haven’t escaped the last one yet.

U.S. Treasury Raises Borrowing Estimate For October-To-December Quarter --The U.S. Treasury Department lifted its borrowing expectations for the final quarter of the year, a move that will leave the government with more cash on hand at the end of the year than initially anticipated. The Treasury Department estimated Monday that it will issue $266 billion in net marketable debt from October to December, $32 billion more than it estimated three months ago. That would leave government accounts with $140 billion in cash, compared with an earlier forecast of $80 billion. In its quarterly estimate of borrowing, the Treasury said it issued $197 billion in debt from the start of July through the end of September, compared with its earlier estimate of $209 billion. The federal government's borrowing needs have fallen this year as higher taxes and an improving economy boosted revenues, leading the Treasury to cut issuance of some notes. The budget deficit for the fiscal year, which ended Sept. 30, totaled $680.28 billion, the first time in five years it has been below $1 trillion.

The World's Third Largest Holder Of U.S. Treasury Debt? Caribbean Banking Centers -- According to the US Treasury Department, Caribbean Banking Centers are the third largest holder of US Treasury debt behind China and Japan. Well, 4th if you include the Federal Reserve. In fact, off-shore tax havens in the Caribbean hold more Treasury debt than Brazil, OPEC, Taiwan and all of Europe. The Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama. While off-shore banks allow better privacy than US banks, they are used primarily as tax havens. Often for foreign investors, but Americans as well. Having an off-shore account is not a crime, although politicians can potentially be embarrassed for having one or more. Both Mitt Romney and the Clintons have had off-shore accounts. And President Obama.

The US Government is not “$16 trillion in the hole” - Cullen Roche - There was a very scary sounding report on CNBC over the weekend that said the US government is “$16 trillion in the hole”  The balance sheet the article used was overly simplistic and extremely misleading.  The asset side of the balance sheet showed just $2.7 trillion in assets.  Which is accurate, if you exclude almost all of the assets the federal government actually owns.  For starters, the IER estimates that total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone.  These assets alone are FIFTY FIVE times the amount stated in the CNBC report.  But that only scratches the surface.  I haven’t even looked into the huge amount of federally owned land and buildings that would surely amount into the hundreds of billions if not trillions of dollars.  There’s also the gold resources.  And there’s the trillions of dollars in its own liabilities that it owns via the Fed and Social Security funds.  I have no idea what all of this would add up to, but it would probably be a net worth nearing $200 trillion or more.  Maybe someone out there who is less lazy than I am can put an exact figure on it?  And none of this even touches on the operational realities behind the United States monetary system and the fact that we’re not going bankrupt unless we choose to go bankrupt.  So don’t fret.  The United States is not in the hole.  Not even remotely close.  And we’re not going to be unable to pay the bills on debt denominated in a currency we can print, unless we choose not to pay those bills.

The Weak Economy and Deficit Reduction: Deniers and Terrorists - Dean Baker - The folks making economic policy in Washington are getting ever more resistant to evidence. As we approach the sixth anniversary of the downturn with no end in sight, the nation has been treated to the perverse spectacle of our Treasury Secretary celebrating the sharp drop in the deficit. This is a bit like celebrating a sunny day in a region suffering from drought. In an economy that is suffering from lack of demand, as is the case in the United States today, smaller deficits are bad news. They mean less demand, slower growth, and fewer jobs. This is not a complex point. Ever since the collapse of the housing bubble, the U.S. economy has suffered from inadequate demand. The inflated house prices of the bubble era led to a building boom. They also fueled a consumption boom, as people spent based on the $8 trillion in bubble generated housing equity. The bubble generated demand disappeared when the bubble burst leaving a gap in annual demand of more than $1 trillion a year. The large deficits the government has run since the downturn began helped to fill part of this gap. Smaller deficits mean the government is filling less of the gap. That shouldn’t be hard to understand.

 Furman: White House to Give Congress Wide Berth on Budget -  A top White House official said Monday that the Obama administration would not draw lines in the sand yet as congressional budget negotiators try to determine how to replace across-the-board spending cuts, deferring to lawmakers as talks face a deadline next month.Jason Furman, chairman of the White House’s Council of Economic Advisers, said the Obama administration would prefer to replace spending cuts known as the “sequester” with the elimination of tax loopholes and other cuts. But he said the White House would not dictate the shape of any possible deal at this point.“We don’t want to sit here and both engage in hypotheticals and prejudge the work that they’re doing,” Mr. Furman said. Mr. Furman repeatedly declined to say that the White House would demand tax increases as part of any deal, saying only that this was the Obama administration’s preference. He said it was up to Democrats and Republicans in Congress to try and reach an agreement.He was referring to a 29-member budget conference committee, which met last week and will continue to meet through mid-December. The group is tasked with sorting through differences in House and Senate budget resolutions that passed earlier this year. The House Republican budget would reduce the deficit by cutting spending. The Senate Democrats’ budget would reduce the deficit by raising taxes and cutting spending.

Time to Fix the Budget Process -  Odds are slim that the budget conference will deliver anything big on substance. No grand bargain, no sweeping tax reform, no big stimulus paired with long-term budget restraint. At best, conferees might replace the next round of sequester cuts with more selective spending reductions spread over the next decade. Those dim substantive prospects create a perfect opportunity for conferees to pivot to process. In principle, Congress ought to make prudent, considered decisions about taxes and spending programs. In reality, we’ve lurched from the fiscal cliff to a government shutdown to threats of default. We make policy in the shadow of self-imposed crises without addressing our long-run budget imbalances or near-term economic challenges. Short-term spending bills keep the government open – usually –  but make it difficult for agencies to pursue multiyear goals and do little to distinguish among more and less worthy programs. And every few years, we openly discuss default as part of the political theater surrounding the debt limit.The budget conferees should thus publicly affirm what everyone already knows: America’s budget process is broken. They should identify the myriad flaws and commit themselves to fixing them. Everything should be on the table, including repealing or replacing the debt limit, redesigning the structure of congressional committees, and rethinking the ban on earmarks. Conferees won’t be able to resolve those issues by their December 13 deadline. But the first step to recovery is admitting you have a problem.

OMB: U.S. Paid $2 Billion to Workers Furloughed During Shutdown - The White House on Thursday said the partial government shutdown forced the administration to pay about $2 billion to employees who weren’t working and led to $500 million in lost visitor spending at U.S. national parks.In a new report, the Obama administration detailed how the 16-day shutdown in October harmed the economy and temporarily shuttered an array of government services. For instance, more than 2 million liters of U.S. beer, wine and liquor were left sitting at ports and Alaska’s famed crabbing season was delayed by several days. Sylvia Mathews Burwell, head of the White House Office of Management and Budget, said “one thing that did come out of the shutdown was a greater appreciation” for all the government does. The report, which Ms. Burwell said was created at the request of Senate Appropriations Committee Chairwoman Barbara Mikulski (D., Md.), fit into the White House’s ongoing messaging that the shutdown was unnecessary and a waste of money. Officials can also be expected to point to these numbers on Friday when the Labor Department issues its October jobs report, which is expected to show slower hiring and higher joblessness due partly to the shutdown.

2014 cuts hit defense spending, so Obama has leverage on taxes - It’s widely assumed that Democrats will have to give up their insistence on a tax increase if they want a budget deal to replace the automatic spending cuts known as “the sequester.” Politico’s Manu Raju and Carrie Budoff Brown reported on Oct. 27 that President Obama had already signaled that he’s willing to negotiate a deal without a tax increase. Thus when Jason Furman, chairman of the council of economic advisers, met with reporters on the morning of Nov. 4, the Wall Street Journal led not with what Furman said but what he didn’t say. He didn’t say flat-out that no deal would go forward without a tax increase. Far more interesting was what Furman did say, in passing, about the sequester. He said that in the next round of sequester cuts, scheduled to take in effect in January 2014, all of the cuts would come out of defense spending. That happens to be correct, and this simple, little-discussed fact puts a pair of aces into the Democrats’ hand. Unfortunately, it isn’t clear that President Obama (whose poker-playing skills aren’t always top-notch) has noticed

Obama wants to cut Social Security - Obama is proposing, along with the support of Republicans and many Democrats, to change how annual increases in Social Security benefits are calculated. Obama wants to switch to a different formula, called Chained CPI. This switch would result in a benefit cut of $230 billion dollars over 10 years. All this is being done under the guise of “strengthening” the program and “securing it for future generations”.  (See here, here, here, here and here) Right now, annual increases in Social Security benefits are calculated using changes in CPI (Consumer Price Index) which measures the price increases in various goods and services. Chained CPI is a twist on regular CPI in that it assumes that when the price of one good goes up people will substitute a cheaper good. For instance, if the price of steak goes up people will switch to chicken. While this makes sense for some things, it doesn’t for others. For instance, if the price of natural gas goes up you can’t just change the heating system you have. If the prices of essential prescription drugs go, up you can’t just substitute something different. So how much would Social Security payments change under Chained CPI? At first, it doesn’t seem like a lot. Using last year’s data, the change would amount to only $3 less for every $1,000 received. The problem is that the money lost compounds over time. If someone draws benefits at age 62, then by the time they reach age 92 they will be losing a full month of income! The changes being proposed are an insidious way of robbing the elderly as they grow older.

Taking Aim at the Wrong Deficit - Bernstein and Baker - ASK most people in this city what the most important step is to increasing economic growth and job creation, and they’ll reply, “Reduce the budget deficit!” They’re wrong. So-called austerity measures — lowering budget deficits while the economy is still weak — have been shown both here and in Europe to be precisely the wrong medicine. But they could be on to something important if they popped the word “trade” into that sentence. Simply put, lowering the budget deficit right now leads to slower growth. But reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget deficit. Running a trade deficit means that income generated in the United States is being spent elsewhere. In that situation, labor demand — jobs to produce imported goods — shifts from here to there. When we run a trade deficit, as we have since 1976, we are spending more than we are producing. When that happens, the national savings rate goes into the red. Either private savings (by households and businesses) or government savings, or both, must be negative.

US public investment falls to lowest level since war - Public investment in the US has hit its lowest level since demobilisation after the second world war because of Republican success in stymieing President Barack Obama’s push for more spending on infrastructure, science and education. Gross capital investment by the public sector has dropped to just 3.6 per cent of US output compared with a postwar average of 5 per cent, according to figures compiled by the Financial Times, as austerity bites in the world’s largest economy. Republicans in the House of Representatives have managed to shrink the US state with their constant demands for spending cuts, even though their uncompromising tactics have exacted a political price, with their approval ratings in Congress at record lows. Democrats control the White House and the Senate and made no substantial concessions in October’s battle over the government shutdown but Mr Obama is still far from one of the main economic goals of his presidency. The figures underline how across-the-board budget cuts are threatening future growth, as the axe falls heavily on federal investments that boost output, rather than transfers such as pensions and healthcare for the elderly.

The 12 Largest Individual Tax Expenditures --While there may be more than 160 tax preferences in the code, most are small in cost and targeted to discrete missions such as the incentives for adopting children or purchasing hybrid cars. To be sure, lawmakers should wipe the slate clean of any inefficient and obsolete provisions, but the big savings are in just a handful of provisions that touch a wide swath of the American public. The biggest provision by far in the code is the exclusion of taxes on employer-provided health insurance, with a budgetary cost of $212 billion annually. There are a couple of separate provisions that exclude taxes on pensions and 401(k)s that we have combined here for a “cost” of $176 billion. The mortgage interest deduction is the other substantial preference in the code. The dozen preferences listed here have a total budgetary cost of $828 billion—some 75 percent of the cost of all individual tax preferences.

How are the rich getting richer? The more they make, the lower income tax rates they pay. Face palm. - An article in Saturday's New York Times Business section digs down into the numbers to demonstrate something people need to know in order to understand just how much the 1 percent run things. James B. Stewart looked at the income tax rates the richest among us paid in 2009, arguably the worst year for our economy since the Depression. Here's what he found. According to IRS data, the top 400 taxpayers (i.e., the top sliver of the top 1 percent), had an average adjusted gross income (AGI) of $202 million. That year, the top federal rate was 35 percent (it's now 39.6 percent). And what percentage did they pay to the federal government in income taxes: less than 20 percent (!)How about the top 1 percent overall, people with AGI's over $344,000? They paid an average of just over 24 percent. And the top 0.1 percent?, those with AGI's over $1.4 million? They paid 24 percent. Fascinating. The rate dropped the higher you went into the top 1 percent. No one is paying close to the actual top marginal rate. And bear in mind that tax exempt interest doesn't even count in the AGI for these people, with it, their incomes would be higher and their effective tax rate even lower.

Rich families hoarding cash: Citi - A new survey of family offices by Citi finds that the wealthy are cash heavy—meaning they may fall short of the investment returns they're expecting. Wealthy families have about 39 percent of their assets in cash, according to a recent poll of more than 50 large family office representatives from 20 countries conducted by Citi Private Bank. Stocks represented about 25 percent of portfolios on average. Bonds were about 17 percent of the asset mix and various classes of less liquid and alternative investments amounted to 19 percent. "Using these weightings, our own return expectation for the portfolio … comes to just 4.4 percent. This matches what we at Citi Private Bank observe generally among high end investors: very high cash holdings, with a current asset allocation unlikely to achieve return targets," Steven Wieting, the bank's global chief investment strategist, wrote in a recent client note. Most of the families surveyed expected interest rates to rise. About 60 percent projected long-term market rates to rise 50 basis points and 17 percent said they would increase 100 basis points or more. Just 2 percent expected U.S. rates to fall.

Bipartisan House gives in to Wall Street and passes Dodd-Frank rollback - A bipartisan majority in the House of Representatives rolled back one of the key elements of the Dodd-Frank financial reform law passed in the wake of the 2008 economic meltdown. The House voted 292-122 to pass Swaps Regulatory Improvement Act, which repeals a provision in the law that required big banks to move some derivatives trading into separate units that aren’t backed by the government’s insurance fund. The vote followed months of heavy lobbying by Wall Street banks, and The New York Times reviewed emails that showed Citigroup lobbyists drafted at least 70 of the House bill’s 85 lines.  In addition, a MapLight analysis showed Citigroup had showered House members who voted for the bill with campaign cash in the three years since Dodd-Frank was passed.

Has Steven A. Cohen Bought Off the U.S. Government? - Back in March, when the Securities and Exchange Commission agreed to settle a big insider-trading case involving SAC Capital Advisors, one of the biggest hedge funds in the country, I mischievously suggested that Steven A. Cohen, SAC’s mercurial and publicity-shy boss, was effectively buying off the U.S. government for six hundred and sixteen million dollars. (That was the size of the fine that the S.E.C. levied on SAC.) It turns out that I was wrong. Cohen is laying out a lot more than six hundred big ones to try to make the feds go away. To be exact, he’s paying them $1.8 billion. Make no mistake, though: this could still be a sweet deal for Cohen, who set up shop twenty years ago with just twenty-five million dollars under management. Assisted by a battalion of high-priced lawyers, he has reached a “global resolution” with the Justice Department that allows him to keep the bulk of the vast fortune—some nine billion dollars, according to the New York Times—that he made running a firm at which insider trading was “substantial, pervasive and on a scale without known precedent in the hedge fund industry.” And, at least for now, Cohen won’t face any criminal charges or the prospect of any jail time.

Move Over FX And Libor, As Manipulation And "Banging The Close" Comes To Commodities And Interest Rate Swaps - While the public's attention has been focused recently on revelations involving currency manipulation by all the same banks best known until recently for dispensing Bollinger when they got a Libor end of day print from their criminal cartel precisely where they wanted it (for an amusing take, read Matt Taibbi's latest), the truth is that manipulation of FX and Libor is old news. Time to move on to bigger and better markets, such as physical commodities, in this case crude, as well as Interest Rate swaps. And, best of all, the us of our favorite manipulation term of all: "banging the close."  The story of crude oil manipulation, primarily involving Platts as a pricing intermediary, has appeared on these pages in the past as far back as a year ago, and usually resulted in either participant companies, regulators or entire nation states doing their best to brush it under the rug. However, it is becoming increasingly more difficult to do so as the following Bloomberg story demonstrates. Some of the world’s biggest oil companies including BP Plc (BP/), Statoil ASA (STL), and Royal Dutch Shell Plc conspired with Morgan Stanley and energy traders including Vitol Group to manipulate the closely watched spot prices for Brent crude oil for more than a decade, they allege. The North Sea benchmark is used to price more than half the world’s crude and helps determine where costs are headed for fuels including gasoline and heating oil.  The case, which follows at least six other U.S. lawsuits alleging price-fixing in the Brent market, provides what appears to be the most detailed description yet of the alleged manipulations and lays out a possible road map for regulators investigating the matter.

10 Corporations Control Nearly Everything You Buy, 6 Media Corporations Control Nearly Everything You Read or Watch - PolicyMic has a very interesting chart that shows how 10 Corporations Control Almost Everything You Buy. PolicyMic explains ... Ten mega corporations control the output of almost everything you buy; from household products to batteries. These corporations create the chain of supplies that flow from one another. Each chain begins at one of the 10 super companies. $84 billion company Proctor & Gamble owns companies that produce everything from detergent to toothpaste. Unilever produces everything from Dove soap to Klondike bars. It's not just the products you buy and consume, either. In recent decades, the very news and information that you get has bundled together: 90% of the media is now controlled by just six companies, down from 50 in 1983, according to a Frugal Dad infographic from last year. It gets even more macro, too: 37 banks have merged to become just four — JPMorgan Chase, Bank of America, Wells Fargo and CitiGroup in a little over two decades, according to this Federal Reserve map.

Big finance is a problem, not an industry to be nurtured - Many western economies have both large financial sectors and exorbitant private debt-to-output ratios. This is no coincidence. Each loan is a debt, so a large financial sector implies high debt levels. For example, in the mid-1980s, loans by UK banks to UK companies and households were less than a quarter of gross domestic product; today they amount to 130 per cent. Add non-bank borrowing to that, and total private debt today stands at well over twice UK GDP. Debt is not all bad; borrowing is good for growth if loans are used productively, so that both the debt and the GDP grow. This is financially sustainable. Problems arise when debt grows beyond the rate of GDP growth. This typically happens because of lending to property and other asset markets, rather than for production of goods and services. In the UK, the relative volumes of home mortgages and of lending to property and financial businesses have tripled since 1990 to a level of 98 per cent of GDP, up from 33 per cent in 1990. Lending to non-financial business was 25 per cent of GDP in 1990 – as it is now. Textbooks depict bank credit as the economy’s lubricant. The reality is starkly different. British banks lend four times more to the mortgage and financial markets than to British business. Things are no different in other overbanked economies such as the US, Canada, Australia, the Netherlands, Sweden, and Luxembourg. Most bank lending today does not create value-added but volatility and debt burdens. There is simply too much of it, and it is not supporting production of goods and services. Research shows that countries with larger financial sectors have less investment and innovation, more instability and lower growth rates. Let us face it: banks hinder and hurt the economy more than they help it. Economic growth now requires a shrinking financial sector.

Bernanke: Regulators Have Taken Steps to Limit Excessive Risk Taking - Regulators have taken a number of steps since the 2008 crisis to ensure that the government-led rescue of the financial system doesn’t encourage further irresponsible risk-taking, Federal Reserve Chairman Ben Bernanke said Friday. As the government’s response to the crisis unfolded, many warned that the Fed and other regulators were creating what economists term a moral hazard problem — that is, as Mr. Bernanke described the problem, that the rescue efforts that “stabilize a panic in the short run can work against stability in the long run, if investors and firms infer from those actions that they will never bear the full consequences of excessive risk-taking.” “The problem of moral hazard has no perfect solution, but steps can be taken to limit it,” Mr. Bernanke said in text prepared for delivery at an International Monetary Fund research conference. Mr. Bernanke didn’t address monetary policy in his prepared remarks. Mr. Bernanke listed several elements of the post-crisis reform agenda that address the moral hazard issue. For one, tougher rules and supervision, such as beefed-up capital requirements, can directly limit risk-taking by financial firms, he said.

Fed’s Dudley Sees ‘Deep Seated’ Cultural, Ethical Lapses at Many Financial Firms - Federal Reserve Bank of New York President William Dudley said Thursday any effort to reduce the threat to financial stability posed by massive financial firms also must include compelling banking executives to have more respect for the law and the broader impact on society of their actions. “There is evidence of deep-seated cultural and ethical failures at many large financial institutions,” Mr. Dudley said. “Whether this is due to size and complexity, bad incentives or some other issues is difficult to judge, but it is another critical problem that needs to be addressed” as regulators seek to deal with the problem of banks that are considered too big to fail, the official said. That in part is why reforming the oversight of these financial behemoths is so important. “Tough enforcement and high penalties will certainly help focus management’s attention on this issue,” Mr. Dudley said, adding that “ending too big to fail and shifting the emphasis to longer-term sustainability will encourage the needed cultural shift necessary to restore public trust in the industry.” Mr. Dudley didn’t make any comments about monetary policy or the economic outlook in his remarks.  He was speaking at the Global Economic Policy Forum, held at New York University. His comments on banking issues come in the wake of last week’s decision by the Fed to stay the course on its $85-billion-a-month bond-buying program. Mr. Dudley has been a steadfast supporter of the aggressively easy-money policies pursued by the central bank. For several years now, international banking authorities have been working to reduce the risk posed by financial firms that most recognize as being too big to fail. These firms are so large that if they were to run into significant trouble, their collapse would have the potential of taking the broader financial system with it. In his speech, Mr. Dudley said the perception of being too big to fail brings with it advantages in the form of lower funding costs, among other factors. The official long has favored making banks hold more capital and, for firms official recognized as being too big to fail, special capital surcharges are appropriate.

The Bankruptcy Exemption - Simon Johnson - The 2013 Banking Resolution Conference, organized by the Federal Reserve Bank of Richmond and the Board of Governors of the Federal Reserve System, was a gripping affair.  The big and important news is that bankruptcy cannot work for large, complex financial institutions in the United States, at least not using the current bankruptcy code. On this there was complete unanimity among the country’s top financial-sector lawyers, some of whom work for big banks.  More specifically, if any such companies were to go bankrupt – as Lehman Brothers did in September 2008 – then global financial panic and potential chaos would follow, on the scale of fall 2008 or greater.  It completely distorts the marketplace to have a small number of very large companies that are exempt from bankruptcy – and that can line up for special treatment. Everyone in the corporate sector would like to have access to some form of back-up government-provided “liquidity facility.” But this is not allowed for good reason; it would have a distortive effect on incentives.Because big banks cannot go bankrupt, they have an unfair advantage against everyone else in the financial sector. The counterparty risk of trading with them is lower, and thus they are regarded as a better credit risk than would otherwise be the case. This allows them to place bigger bets, which in turn creates more risk for the macroeconomy.

Why Does JPMorgan Still Have A Banking License? - Ilargi -- I was, well, still am, reading up on the latest developments in the wonderful world of Libor, and the name JPMorgan pops up a lot in connection with all that. There's of course the recent -probably still tentative - $13 billion settlement with the US Justice Department. Seeing all the separate cases that have either been settled or are under active investigation in which JP Morgan is mentioned, along with a couple small lists in the WaPo And HuffPo, I figured it might be a good idea to make a more complete list (though I have no doubt I could make it twice as long) of actually investigated cases America's largest bank is a part of. JPMorgan's total assets amount to $2.509 trillion, its derivatives exposure is $70-$80 trillion, and it's certainly too big to fail and systemically important. But seeing a list like this, how can anyone not wonder that if this is what the system depends on, the system itself is so rotten we need to get rid of it? I mean, what does it take, a modern day version of the Untouchables? Not that I think they'd get JPMorgan for tax evasion, mind you. But right now, nobody gets them for anything at all, except for a few billion here and there in fines that the perpetrators themselves don't even get to pay. The $13 billion settlement is only just over a third of what JPMorgan is spending on lawyers to defend itself and it executives

Chase Isn't The Only Bank In Trouble - Taibbi - There are multiple scandals blowing up right now, including a whole set of ominous legal cases that could result in punishments so extreme that they might significantly alter the long-term future of the financial services sector. As one friend of mine put it, "Whatever those morons put aside for settlements, they'd better double it." Firstly, there's a huge mess involving possible manipulation of the world currency markets. This scandal is already drawing comparisons to the last biggest-financial-scandal-in-history (the Financial Times wondered about a "repeat Libor scandal"), the manipulation of interest rates via the gaming of the London Interbank Offered Rate, or Libor. The foreign exchange or FX market is the largest financial market in the world, with a daily trading volume of nearly $5 trillion. Regulators on multiple continents are investigating the possibility that at least four (and probably many more) banks may have been involved in widespread, Libor-style manipulation of currencies for years on end. One of the allegations is that traders have been gambling heavily before and after the release of the WM/Reuters rates, which like Libor are benchmark rates calculated privately by a small subset of financial companies that are perfectly positioned to take advantage of their own foreknowledge of pricing information.

Fed Survey: Banks eased lending standards, "little change in loan demand" - From the Federal Reserve: The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. Domestic banks, on balance, reported having eased their lending standards and having experienced little change in loan demand, on average, over the past three months. . Motivated by the increase in long-term interest rates since the spring, the first set of questions asked banks to describe whether they had experienced changes in the volume of applications for residential mortgages and whether they had changed lending policies for new home-purchase loans. The second set of questions examined the standards and terms on subprime auto loans over the past 12 months. This summary is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks. The survey results also indicated that banks, on average, did not substantially change standards or terms on lending to households. Modest net fractions of respondents reported having eased standards on prime residential mortgage loans, with a few large banks indicating they had eased standards on those loans.

Few Banks Easing Mortgage Standards in Response to Higher Rates, Fed Says - Most U.S. banks have maintained their existing lending standards on residential loans in recent months despite rising interest rates and softer demand for mortgages, a Federal Reserve survey found. Reuters Nearly 80% of banks said their credit standards for mortgages remained basically unchanged from July through September, according to a quarterly Fed survey of bank loan officers released Monday. Only about 15% of banks said their standards for mortgages have eased somewhat. “Easier credit conditions, more generally, are helping the economic recovery,” said Erik Johnson, senior U.S. economist at IHS Global Insight. “But what’s concerning is that lending standards for residential mortgages have not improved much since tightening dramatically during the crisis.” The Fed report includes responses from 73 domestic banks and 22 U.S. branches of foreign lenders. The survey, conducted between Oct. 1 and Oct. 15, also asked a series of questions about the effect of rising mortgage rates on banks’ lending. The average interest rate on a 30-year fixed-rate mortgage increased by more than one percentage point from May to October. More than 40% of banks said they saw a lower volume of mortgage applications since the spring, prior to the increase in mortgage rates. About a third of banks said demand was about the same or stronger.

Fed's Pianalto: Tight Mortgage Credit holding back Economy - From Cleveland Fed President Sandra Pianalto: Housing in the National Economy: A Look Back, a Look Forward So that is where we have been--a housing bust followed by a recession and sluggish economic recovery that was made all the more sluggish because of the weakened housing market. Looking ahead, tight conditions in mortgage credit markets will continue to hold the housing sector and broader economy from getting back to full strength more quickly. Let me elaborate on that point. In a recent Federal Reserve survey of senior loan officers, bankers reported that credit standards for all categories of home mortgage loans have remained tighter than the standards that have prevailed on average since 2005. Financing companies no longer assume that houses will provide adequate collateral for borrowers with fragile credit histories. In addition, financial market regulators are standing vigilant to ensure there is no recurrence of the housing bubble that almost brought the financial system and global economy to its knees. Moreover, access to mortgage credit has become far more restrictive. To get a mortgage today, it helps to have a very high credit score. Lenders are more likely to extend mortgage credit to consumers they perceive as very low risk. As a result, the pool of potential mortgage borrowers has shrunk. Households with low credit scores that were able to get credit before the crisis now are the least able to refinance their homes, or to obtain new mortgage loans. These are also the households who seem to be especially cautious in their spending these days. For these households, the days of extracting "free cash" from their homes are over. It is now mostly households with ample savings that spend and save as they normally would.

Unofficial Problem Bank list declines to 662 Institutions -- This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for November 1, 2013.  Changes and comments from surferdude808: Other than an unusual bank closing on Wednesday, the week was fairly routine for the Unofficial Problem Bank list with seven other removals. After the removals, the list holds 662 institutions with assets of $229.4 billion. A year ago, the list had 861 institutions with assets of $328.4 billion.This Wednesday, the state of Florida and the FDIC closed Bank of Jackson County, Graceville, FL ($25 million). Apparently, the bank's board of directors had made a legal filing delaying the closing. An appeal period lapsed on Wednesday, which allowed the closing to proceed. There is nothing new to pass along on Capitol Bancorp, Ltd.

The Frontiers of Mortgage Servicing, Part I - Katie Porter - For the last 18 months, I've served as the California Monitor for the National Mortgage Settlement at the request of California Attorney General Kamala D. Harris.  I wanted to write about is the first in a series of thoughts that I have about where mortgage servicing policy needs to go in the future. My first topic where think mortgage servicing needs more conversation and reform is the role of the FHFA and Fannie/Freddie in having fostered/enabled/encouraged some of the unsavory practices in mortgage servicing through their servicing guidelines. Dustin Zachs' piece, Robo-Litigation, offers several detailed examples of how Fannie and Freddie were entangled with the law firms engaged in robo-signing and other illegal practices. He gives a detailed account of David Stern, named Fannie Mae's lawyer of the year in 1998 and 1999. But in 2002, the Florida Bar disciplined him for misleading affidavits in those prior years. Fannie and Freddie did not stop referring cases to him until October 2010. I think there is good reason to believe that the development of the "retained attorney network" in 1997 and the metrics used by Fannie and Freddie to measure servicing performance--at minimum--created poor incentives for following state foreclosure and consumer protection law. Okay, that was then. Where are we now? Despite all the debate about Fannie and Freddie's role as loan guarnators and the debate over leadership at FHFA, there has been relatively little written on the servicing guidelines and the role of Fannie/Freddie as the largest "consumer" in the servicing market, with the most ability to reshape the business of servicing.

The One Mortgage Fix Washington Isn’t Talking About - Congress is debating what to do about Fannie Mae and Freddie Mac, the government-owned mortgage insurance companies that collapsed during the 2008 financial crisis.  Worried that the government backs too many new mortgages, the Washington consensus has coalesced around a solution that looks a lot like Obamacare. The leading proposals involve getting rid of the Frannies to have private companies create mortgage-backed securities. The government’s role would be to insure some of those mortgage-backed securities, to subsidize the home purchases of the disadvantaged and to regulate mortgage-market players to prevent predatory practices and risk-taking that could lead to taxpayer bailouts.   So what about alternative ideas? There are surprisingly few.  Some conservatives argue for the government to get out of the mortgage market completely. The liberal establishment concedes the argument that reform should bring investors back into the housing market and shrink government’s role. They spend their energies pushing to expand and protect housing affordability and access.   Even the Center for Responsible Lending, a progressive group dedicated to fighting predatory loans, agrees “with the emerging consensus,” according to a vice president of the group in Senate testimony last month, “that taxpayer risk must be insulated by more private capital.”  What’s almost entirely missing is any unashamedly liberal argument that the government should continue to play a large role in the mortgage market. In fact, it’s taken as a given that too much government involvement is a worrisome thing.  The opposite may well be true: There’s a good argument that preserving the government’s large and active role will make the market safer and more efficient than the reforms. 

LPS on Mortgages: New Problem Loan Rates Close to Pre-crisis Levels - LPS released their Mortgage Monitor report for September today. According to LPS, 6.46% of mortgages were delinquent in September, up from 6.20% in August. LPS reports that 2.63% of mortgages were in the foreclosure process, down from 3.86% in September 2012. This gives a total of 9.03% delinquent or in foreclosure. It breaks down as:
• 1,935,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,331,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,328,000 loans in foreclosure process.
For a total of ​​4,593,000 loans delinquent or in foreclosure in September. This is down from 5,640,000 in September 2012.This graph from LPS shows percent of loans delinquent and in the foreclosure process over time. From LPS:

    • Delinquencies increased, but in-line with seasonal pattern
    • Foreclosure inventories continue to improve with first time foreclosure starts at multi-year lows

Delinquencies and foreclosures are still high, but moving down - and might be back to normal levels in a couple of years.The second graph from LPS shows new problem loans. There are seriously delinquent loans that were current 6 months ago. This is good news going forward (although the lenders are still working through the backlog, especially in judicial foreclosure states).

MBA: Mortgage "Delinquency and Foreclosure Rates Continue to Plummet" in Q3 - From the MBA: Delinquency and Foreclosure Rates Continue to Plummet, Improve to Best in More than Five Years The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.41 percent of all loans outstanding at the end of the third quarter of 2013, the lowest level since the second quarter of 2008. The delinquency rate dropped 55 basis points from the previous quarter, and 99 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 3.08 percent down 25 basis points from the second quarter and 99 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since 2008.  “States with judicial foreclosure systems still account for most of the loans in foreclosure. While the percentages of loans in foreclosure dropped in both judicial and nonjudicial states, the average rate for judicial states was 5.28 percent, more than triple the average rate of 1.66 percent for nonjudicial states.This graph shows the percent of loans delinquent by days past due. Loans 30 days delinquent decreased to 2.79% from 3.19% in Q2. This is close to the long term average.Delinquent loans in the 60 day bucket decreased to 1.07% in Q3, from 1.12% in Q2. This is still slightly elevated.The 90 day bucket decreased to 2.56% from 2.65%. This is still way above normal (around 0.8% would be normal according to the MBA).

MBA National Delinquency Survey: Judicial vs. Non-Judicial Foreclosure States in Q3 2013 - Earlier I posted the MBA National Delinquency Survey press release and a graph that showed mortgage delinquencies and foreclosures by period past due. There is a clear downward trend for mortgage delinquencies, however some states are further along than others. From the press release:  “The degree to which the mortgage delinquency and foreclosure problem has changed over the last five years is perhaps best illustrated by the fact that last quarter New Jersey led the nation in the increase in the percentage of foreclosure actions filed, followed by Delaware, Maryland and Indiana. While Florida still leads the nation in the percentage of loans in foreclosure, that percentage is falling. In contrast, New York and New Jersey were the only two states that saw an increase in the percentages of loans in foreclosure,” said Jay Brinkmann, MBA’s Chief Economist and SVP of Research and Education. ... States with judicial foreclosure systems still account for most of the loans in foreclosure. This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission. Blue is for judicial foreclosure states, and red for non-judicial foreclosure states. The top states are Florida (9.48% in foreclosure down from 10.58% in Q2), New Jersey (8.28% UP from 8.01%), New York (6.34% UP from 6.09%), and Maine (5.44% down from 5.62%). Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures. California (1.42% down from 1.64%) and Arizona (1.26% down from 1.51%) are now far below the national average by every measure. For judicial foreclosure states, it appears foreclosure inventory peaked in Q2 2012 (foreclosure inventory is the number of mortgages in the foreclosure process).  It looks like the judicial states will have a significant number of distressed sales for a few more years - however the non-judicial states are closer to normal levels.

Lawler on Fannie and Freddie Results, REO Inventory Increases in Q3 - From economist Tom Lawler: Fannie Q3 Highlights: GAAP Net Income $8.7 Billion; Dividend Payment to Treasury in December $8.6 Billion, Bringing Cumulative Payments to $113.9 Billion; SF REO Inventory Up on Slower Dispositions Due to “Overall Market Conditions”  Fannie Mae reported that its GAAP net income in the quarter ended September 30, 2013 was $8.7 billion, and that its “GAAP” net worth at the end of September was $11.6 billion, which under the term of the “revised” senior preferred dividend agreement means that Fannie will make a $8.6 billion dividend payment to the Treasury in December. That payment will make cumulative dividend payments to the Treasury of bout $113.9 billion. The Treasury’s senior preferred stock amount will remain at $117.1 billion. Fannie’s cumulative cash Treasury draws totaled $116.1 billion. On the SF REO front, here are some summary stats on Fannie’s activity.

Distressed Home Sales: Rising or Falling? It Depends on the Source -- A report from data firm RealtyTrac released last month showed that sales of distressed homes increased in September compared with one year ago. One problem: the RealtyTrac conclusion is contradicted by many other sources. Home prices have rebounded over the past year in part because of the shrinking share of distressed sales, so the question of whether they are rising or falling gets to the heart of where home prices are headed. RealtyTrac said that sales of foreclosures and short sales, where lenders allow homeowners to sell their properties for less than the amount owed, accounted for 25% of homes sold in September, up from 18% one year ago. Short sales accounted for 15% of all homes sold in September, up from 9% one year earlier, while bank-owned homes accounted for 10% of sales, up from 9%.Other sources, however, show that the opposite trend is happening:  CoreLogic, for example, reported that sales of foreclosures and short sales accounted for less than 15% of all home sales in September (8.2% of all sales were bank-owned sales and 6.4%, short sales), compared with 21% one year earlier. The National Association of Realtors, which relies on a survey of its members, found that its tally of bank-owned sales and short sales fell to 14% in September from 24% one year earlier. Data from Hope Now, an industry group, shows that short sales and foreclosures have continued to decline this year, reaching new lows this summer. Fannie Mae and Freddie Mac have also reported double-digit declines from one year earlier in foreclosures and short sales, according to data released by their regulator.

 Single-family rental securitization market boasts trillion-dollar potential - The REO-to-rental securitization deal that Blackstone (BX) subsidiary Invitation Homes brought to market is just the tip of the iceberg, with KBW analysts forecasting a nearly trillion dollar market when calculating the lingering possibilities that exist for single-family rental securitization deals.  KBW analysts put out a report saying that when assuming a 70% LTV on the properties in such deals, a capture rate of 35% – and the addition of $40 billion in annual production over the course of six years – the REO-to-Rental securitization marketplace is nearing $920 billion in potential opportunities. This also includes an estimation of an average priced home in the $200,000-range, bringing the total value for the single-family rental sector to $2.8 trillion.  The Blackstone deal has inspired much discussion about the scope, interest and potential size of this market. It's new, but the larger the first deal and the more interest generated, the more likely other market players will express potential interest. Moody’s Investors Service (MCO) analyzed the Invitation Homes 2013-SFR1 REO-to-Rental deal this week, awarding $278.7 million in triple-A ratings for the largest tranche of the deal. In all, $479.1 million in MBS is classified into four classes of certificates backed by one floating rate loan secured by mortgages on single-family rental properties. Kroll, Moody’s and Morningstar all took shots rating the deal – a boon for future securitizations in this space, KBW claims.

Wall Street slumlords’ outrageous new scheme: How they could wreck the economy again - You’d think that investors would run away from a new Wall Street innovation as fast as Congress runs away from a good idea. But instead, they’re flocking to the latest product peddled by large banking interests, even though they look almost exactly like the mortgage-backed securities that were a primary driver of the financial crisis. These new securities, backed by rental payments, also have real-world implications for millions of renters, who could end up turning in their monthly checks to Wall Street-based absentee slumlords. Over the past couple of years, private equity firms and hedge funds have bought up over 200,000 single-family homes, mostly discounted foreclosed properties in communities wrecked by the housing crash, such as Phoenix, Atlanta, Tampa, Sacramento, Los Angeles and Riverside, Calif. They have spent billions to scoop up these vacant homes at fire-sale prices, renovate them, and rent them out, promising investors double-digit annual returns on the rental revenue. Private equity firms like Blackstone, which owns more than 40,000 single-family homes, think they can build an entirely new asset class out of this scheme, controlling the rental market for single-family homes. The irony is rich: Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street. Blackstone teamed with Deutsche Bank, Credit Suisse and JPMorgan Chase to put together the first-ever rental revenue bond, named “Invitation Homes 2013-SFR1.” Basically, Blackstone took out mortgages with the banks on 3,207 of its rental properties, in exchange for $479 million in cash, and they will forward rental payments to the bondholders to pay back the loan.

What does the Fed's bank survey tell us about mortgage origination? -- The Fed recently released the latest Senior Loan Officer Survey data. The results are important because they allow us to get a glimpse of how the increase in long-term rates impacted lender and borrower behavior. Here are a couple of conclusions:
1. Higher rates did not have a negative impact on banks' underwriting standards. In fact some banks reported loosening their requirements.WSJ: - Nearly 80% of banks said their credit standards for mortgages remained basically unchanged from July through September ... about 15% of banks said their standards for mortgages have eased somewhat.

2. Demand for mortgage loans has dropped quite sharply as rates increased. WSJ: - More than 40% of banks said they saw a lower volume of mortgage applications since the spring, prior to the increase in mortgage rates. About a third of banks said demand was about the same or stronger. Fewer home owners refinanced their mortgages in the period due to rising interest rates, the banks said. More than 90% of banks have received moderately to substantially lower volumes of applications compared with the spring. The chart below shows the two trends.

Weekly Update: Housing Tracker Existing Home Inventory up 2.1% year-over-year on Nov 4th - Here is another weekly update on housing inventory ... for the third consecutive week, housing inventory is up year-over-year.  This suggests inventory bottomed early this year.  There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.  The Realtor (NAR) data is monthly and released with a lag (the most recent data was for September).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013.  In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.Inventory in 2013 is now above the same week in 2012 (red is 2013, blue is 2012).We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase. 

CoreLogic: House Prices up 12.0% Year-over-year in September - The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).From CoreLogic: CoreLogic Reports Home Prices Rise by 12 Percent Year Over Year in September: Home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September 2013 compared to September 2012. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.2 percent in September 2013 compared to August 2013.Excluding distressed sales, home prices increased on a year-over-year basis by 10.8 percent in September 2013 compared to September 2012. On a month-over-month basis, excluding distressed sales, home prices increased 0.3 percent in September 2013 compared to August 2013. Distressed sales include short sales and real estate owned (REO) transactions.This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 0.2% in September, and is up 12.0% over the last year. This index is not seasonally adjusted, and the month-to-month changes will be smaller for next several months. The index is off 17.5% from the peak - and is up 22.8% from the post-bubble low set in February 2012.

Fitch Warns Of Housing Bubble, Says "Unsustainable" Jump Leaves Home Prices 17% Overvalued - Whether it is 'cover' for the all-too-obvious collapse to come (when another round of ratings agency litigation will take place as blame is apportioned) or more likely a 'fool-me-once...' perspective on reality, Fitch has a new report blasting the "unsustainable" jump in home prices, adding that "the extreme rate of home price growth is a cause for caution." While they note, rising prices are a positive indicator for a recovery, Fitch adds that unprecedented home price growth should be paired with economic health that is similarly unprecedented, the evidence for which is lacking in this case. Based on the historic relationship between home prices and a basket of econometric factors, Fitch considers estimates national prices to be approximately 17% overvalued in real terms (Bay Area home prices to be nearly 30% overvalued, which approximates the environment in 2003, three years into the formation of the previous home price bubble) - as "speculative buying, not increasing demand" is driving the market. Between this 'speculation' and interest rates, affordability is "strained." Via Fitch: As a whole, the signs of a strengthening economic recovery are present, with momentum continuing to trend in a positive direction. Fitch expects these trends to continue, although the high rate of home price growth is not considered to be sustainable. Currently, Fitch’s Sustainable Home Price Model estimates national prices to be approximately 17% overvalued in real terms, with individual geographic regions varying widely.

Trulia: Asking House Price Increases "Slowing Down" - From Trulia this morning: Trulia Reports Asking Home Prices Still Slowing Down Despite Rising 11.7 Percent Year-over-year in October In October, asking home prices increased 0.6 percent month-over-month (M-o-M), the second-slowest monthly gain in seven months. This continued slowdown in asking prices is largely due to expanding inventory, rising mortgage rates, and declining investor activity. Asking prices could potentially slow further if consumer confidence suffers from the ongoing budget uncertainty and future shutdown and debt-default worries. Nevertheless, the monthly, quarterly, and yearly gains are all still high compared with historical norms. In fact, asking prices rose 11.7 percent year-over-year (Y-o-Y) – the highest increase since the housing bubble burst. .. Nationally, rents rose 2.7 percent Y-o-Y. Among the 25 largest rental markets, rents rose most in San Francisco, Portland, and Seattle, while falling slightly in Washington D.C. and Philadelphia. Unfortunately for Bay Area renters, San Francisco now has the steepest Y-o-Y increase in rents and the highest median rent: $3,250 for a two-bedroom unit, edging out the New York metro area where the current median rent for a similarly-sized unit is $3,150 per month. At the other extreme, median rent for a two-bedroom unit is less than $1,000 in Phoenix, St. Louis, and Las Vegas.Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis (but the year-over-year increases will probably slow).  More from Jed Kolko, Trulia’s Chief Economist: Though Slowing, Asking Home Prices Still Climbing Fast

Home Prices Rise in Most U.S. Metro Areas - Median home prices rose in most U.S. metropolitan areas in the third quarter, and several breakout markets had double digit increases—a development that has eroded home affordability in several hot markets in California. Some 88% of U.S. metro areas saw their median home price rise in the third quarter versus the same period a year ago, according to this release from the National Association of Realtors.To be sure, median prices are not a good weather vane for the housing market, especially when you’re measuring median prices from sales that closed before an interest rate spike that has made today’s market slightly different from the one measured by this data.The data show that as the U.S. home market gained steam over the past year, the real estate recovery spread out to more metropolitan areas around the country. In the third quarter of 2012 versus 2011, some 81% of markets had annual increases. One of the bigger changes over the past year is that a few markets have really broken out with double-digit increases. In 2012 compared with 2011, just under one in five U.S. metro areas saw double-digit increases. In this year’s third quarter vs. 2012, it was almost one in three.

Cash buyers of property outstrip mortgage-backed sales: Despite it being more difficult to obtain a mortgage since the 2007 housing market crash, residential properties were still more often bought with a mortgage, rather than with cash. Until the past year, that is! Cash buyers outstripped mortgage buyers in four out of the past twelve months. Given that at no other time while this index has been recorded have mortgage sales dipped below cash sales, even once, this is a significant change. Donna Houguez, Quick Move Now’s market analyst explains: “A rise in the return on investment levels of buy-to-let and a drive to purchase before the market rises again has led to those people with cash reserves available using them to buy property outright. Quick Move Now provides one-of-its-kind data to property analysts to help with assessment of the housing market. Data calculation: Quick Move Now sells hundreds of properties each year and the method of purchase (cash or mortgage) is recorded for each transaction.

Home Prices Are Rising, But Don’t Call it a Recovery - The housing market is back, right? For well over a year now, housing prices nationally have been appreciating at a rapid pace, with some markets like Dallas and Denver recently touching all-time highs. Overall, housing prices are still below their pre-crisis peak, but they’ve made up much of the ground they lost. What’s curious, however, is why that hasn’t lead to home builders building more homes. As you can see from the chart above, homes are still slightly less valuable than they were ten years ago during the go-go days of the housing bubble. But new construction of homes (called housing starts) absolutely bottomed out during the crisis, and remain more than 50% below their pre-crisis levels. This is the main reason why — as my colleague Rana Foorohar has explained — rising home prices haven’t actually been a driver of economic growth. After all, the existence of expensive homes is usually the effect of a healthy economy rather than the cause. Expensive housing will motivate home builders to ramp up production, creating good-paying jobs for the sort of workers who need them most in this economy.

Two potential headwinds for the US housing market - While the US housing market remains relatively robust, it is likely to face a couple of headwinds going forward. One is the lower affordability index, which is declining due to higher prices and higher mortgage rates (see discussion). On a year-over-year basis the declines have been quite steep. The second trend that will detract from demand for homes is the recent slowdown in net household formation. The chart below shows the year-over-year change in total number of US households. This decline in the "formation rate" is likely to be transient (simply because of population growth), but it is not helpful for the housing market nevertheless.

Framing Lumber Prices up 15% year-over-year - Here is another graph on framing lumber prices (as an indicator of building activity). Early this year I mentioned that lumber prices were nearing the housing bubble highs. Then prices started to decline sharply, with prices off over 25% from the highs by June.   The price increases early this year were due to demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online). Prices have been increasing again since June (there is some seasonality to prices).Currently prices are up about 15% year-over-year. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.We will probably see another surge in prices early next year

Homeownership Rate Climbs From Lowest Level Since 1995 - The U.S. homeownership rate climbed from the lowest level in 18 years, signaling that the real estate rebound is drawing in more buyers. The share of Americans who own their homes was 65.3 percent in the third quarter, up from 65 percent in the previous three months, the Census Bureau reported today. The prior level was the lowest since the third quarter of 1995. Rising real estate values are removing negative equity, helping homeowners avoid foreclosure, while also luring would-be purchasers into the market before prices and mortgage rates go higher. The pool of eligible buyers is expanding as U.S. employment improves and families who lost properties during the recession repair their credit and seek another chance at owning. Americans whose properties were repossessed were once “homeowners by choice and now they are renters by chance,” . “They will repair their credit and be back in the market as homebuyers. We don’t grow up in the country aspiring to be renters. We aspire to be owners.”

Home Ownership Rates Are Bad News for America -- Home ownership is at the lowest rate since the 4th quarter of 1995.  The Census released their quarterly housing vacancies and home ownership report.  The seasonally adjusted homeownership rate is 65.1%.  Many in the press tried to claim homeownership is increasing by quoting the not seasonally adjusted home ownership rate of 65.3%, which gives an uptick in people owning homes in America from the 2nd quarter of 2013.  The reality is, not so.  The great ownership society went bankrupt.  Below is a graph of home ownership rates, both seasonally and not seasonally adjusted, from 1990.  Seasonally adjustments remove variance which comes from the different seasons in the year.  For example, most people might own homes in the winter due to the summer buying season being a point of transition.  That Q3 uptick from Q2 the press is so quick to jump on is within the margin of error and also due to seasonal variance.  The 65.3% figure is not seasonally adjusted whereas the 65.1% figure is and shows a low point in home ownership for Q3 2013.  Sorry, less people in America own homes than way back when to 1995. From a year ago home ownership has declined by 0.3%.  We don't know who is buying up all of the houses as of late but clearly the owners are not living in them, else the homeownership rate would increase. The rent situation isn't much better.  The median rent increased to $736.  That said, certain areas of the country are simply unaffordable, even if one makes six figures.   For example, in Silcon valley, Santa Clara county, the average rent for a cruddy 1 bedroom is $2,128. Below is a graph of the national median weekly wage graphed against the national median rent.  One should spend no more than 25% of one's earnings on rent.  While this appears to be maintained, on the median, we can see renters are not getting a break in housing costs to save their souls.  From a year ago, the median rent increased by 4.35%.  Median rent is at it's highest value ever.

HVS: Q3 2013 Homeownership and Vacancy Rates - The Census Bureau released the Housing Vacancies and Homeownership report for Q3 2013 this morning.  This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey. This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate,except as a guide to the trend. The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate was increased to 65.3% in Q3, from 65.0% in Q2.  I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range - and given changing demographics, the homeownership rate is probably close to a bottom.  The rental vacancy rate increased slightly in Q3 to 8.3% from 8.2% in Q2. I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate is at the lowest level since 2001 - and might be close to a bottom.

Vital Signs: Housing Inventory Remains Spacious _ Despite the continuing increase in home sales, housing vacancy rates remain high. That suggests a substantial share of housing demand can be satisfied by existing homes and not from new construction that would provide more growth and jobs for the U.S. economy. The Commerce Department reported Tuesday that 10.2% of U.S. homes were vacant in the third quarter. That’s little changed from 10.1% in the second quarter but still well above seen before the housing boom. What’s of interest is the rising share of vacant home that are being held off the market, not listed for rent or sale. According to real estate website,, off-market homes accounted for 53% of vacant homes last quarter, up 45% in the third quarter of 2006 when housing was near its peak. Homes can be held off the market because they are under repair or being prepared to be put on the market, says Trulia’s chief economist Jed Kolko. For a large number, sellers are not putting out the “for sale” sign until home prices rise further. The homes held off the market represent a shadow inventory of homes. As repairs are completed and prices rise, these homes will move out of the shadows and into active real-estate markets. Buyers and renters then will have a greater choice of properties. Kolko says that could slow or even reverse recent price and rent increases.

Lawler: Household Estimate, If True, Disturbing; Fortunately, Probably Isn’t - CR Note: CNBC had an article today: The housing stat you need to watch Household formation—when a person who lives with someone else (parents, roommates, etc.) moves into another housing unit on his or her own, creating a new household—has averaged around 1 million per year historically as the U.S. population grows. In the early part of this century, when housing was just beginning its boom, it jumped by nearly 2 million. In the third quarter of this year, just 380,000 new households were formed, according to the U.S. Census. This household formation data is from the Housing Vacancies and Homeownership report and is probably not accurate. From economist Tom Lawler: The Census released the Third Quarter 2013 “Residential Vacancies and Homeownership” Report this morning, which is based on the Housing Vacancy Survey supplement to the Current Population Survey. Here are some summary stats from the report, which is commonly called the Housing Vacancy Survey (HVS) report.The surprising – and if true, disturbing – stat from the report is the estimate for occupied homes, which for last quarter was up just 380,000 from a year ago. That YOY increase is the lowest since the second quarter of 2010, and such anemic growth, if accurate, would be “most disturbing” from a “housing recovery” perspective. However, other estimates from a CPS-based survey earlier this year show significantly faster household growth from early 2012 to early 2013 than does the HVS, making it difficult to determine what, if anything, this latest report might mean.

US Rents Rise To New All-Time High; Homeownership Rate Stuck At 18 Year Low - One quarter ago, when we performed our regular update on trends in US homeownership and rents, we said that "The American Homeownership Dream is officially dead. Long live the New Normal American Dream: Renting." What happened since then is that the American Dream briefly became a full-blown nightmare when in Q3 mortgage rates exploded, pummeling the affordability of housing, and ground any new mortgage-funded transactions to a complete halt (don't believe us - just ask the tens of thousands of mortgage brokers let go by the TBTF banks in the past 6 months). Which is why it was not at all surprising to find that the just updated Q3 homeownership rate has remained stuck at 65.1%: the lowest since 1995.  And yet, even though household formation has continued to implode (more on that in a subsequent post) despite the shrill promises of housing bulls who still have to realize that the transitory pick up in home prices has nothing to do with organic growth or a stable consumer, and all to do with the Fed's balance sheet, the now effectively finished REO-To-Rent program, and illegal offshore cash paked in the US, Americans have to live somewhere. That somewhere is as renters of Wall Street and other landlords. As the next chart shows, the median asking rent has once again risen in Q3, this time by just $1 from $735 to $736 per month.

Rising disparity between renters and homeowners -- US residential rental costs continue to increase. Stories like the one below are echoed throughout the nation. KARE 11/AP: - The Minnesota Housing Partnership says Twin Cities residents are seeing some of the biggest rent increases in 12 years and the average rent in the area is nearing $1,000 per month. Minnesota Housing Partnership Director Chip Halbach says about half of all Minnesota renters pay more than 30 percent of their income in rent.  With wages stagnant (see post), the proportion of income going into rent is on the rise. The Fed recently released the latest data on the so-called "Financial Obligations Ratios" (FOR). For homeowners FOR represents required payments on mortgages, credit cards, auto loans, student loans, auto lease payments, homeowners' insurance, and property tax payments - all as percentage of disposable income. For renters the mortgage payments and property tax payments are replaced with rental payments. While homeowners have been able to reduce their monthly payments to the lowest level in decades via mortgage refinancing and cutting back on credit card usage, the FOR for renters has been on the rise. It's an unwelcome trend that shows a rising disparity between the lower income renters and the nation's homeowners.

The Second Derivative on the Bankruptcy Filings Rate -- The bankruptcy filing rate continues to decline. That is bad news for bankruptcy lawyers but good news for, well, people. The second derivative, however, seems to be declining -- that is the rate of change in the rate of change is slowing, albeit barely. Instead of year-over-year declines each month of 14-15% as was happening last year, declines are now around 11-12%. Year-over-year declines the past three months have been -11.0%, -12.5%, and 11.4%. But, declines are still declines. Overall, total U.S. bankruptcy filings look like they will be about 1,030,000 (give or take) for the 2013 calendar year, which is about what I predicted in May. That will be a 13.2% decline as compared to 2012. Although I have not done a formal analysis, the trend line suggests and short-term rises in consumer credit suggest bankruptcy filings will continue to decline well into 2014. Bankruptcy filing rates remain historically low as well. As the chart shows, the 12-month moving average on bankruptcy filings now stand at 3.34 per 1,000 persons. Ignoring the statistical anomalous gyrations around th2 2005 bankruptcy, the last time the filing rate was that low was 1995. The filing rate has been as high as 5.67 per 1,000 persons in 2002 and peaked at 5.07 per 1,000 persons in 2010 before the present decline began.

(Unmet) Credit Demand of American Households - NY Fed - One of the direct effects of the 2008 financial crisis on U.S. households was a sharp tightening of credit. Households that had previously been able to borrow relatively freely through credit cards, home equity loans, or personal loans suddenly found those lines closed off—just when they needed them the most. In recent months, aggregate statistics such as the Federal Reserve’s Consumer Credit series and the Senior Loan Officer Opinion Survey have shown a gradual improvement in consumer credit. The former series is an indicator of interaction of credit supply and demand, while the latter shows only short-term changes in demand and supply (as reported by lenders) separately. It is, therefore, not entirely clear whether the observed trends are a result of fluctuations in demand or supply. Are those demanding credit getting it? What differences are there among U.S. consumers in their demand for and access to credit?  To answer these questions, we designed and included a set of questions on credit access and demand as part of an internet-based survey conducted by the New York Fed. The May survey, administered to 1,375 U.S. households heads, included questions about households’ ability to obtain credit and their expectations about obtaining credit in the future. Fifty-three percent of households reported that they applied for some type of credit in the past twelve months: 41 percent of households applied for credit and were approved (accepted applicants), while 12 percent applied and were rejected (rejected applicants). Besides the 53 percent who applied for credit, an additional 7 percent reported that they needed credit over the past twelve months, but did not apply because they believed they would not be approved.

Credit-Card Debt Declines for Fourth Straight Month - U.S. credit card balances declined for the fourth consecutive month in September, suggesting rising caution among the nation’s consumers. Revolving credit, which largely reflects money owed on credit cards, fell by a seasonally adjusted $2.06 billion in September, or at a 2.91% annual rate, the Federal Reserve said Thursday. Over the past four months, revolving balances have dropped by $8.48 billion. Nonrevolving debt, mostly auto and education loans, increased by $15.80 billion, or at an 8.7% annual rate. Such debt has been trending higher since 2010, reflecting a surge in government-backed student loans and purchases of new autos. Total consumer credit, excluding home loans, rose by $13.74 billion in September. Economists surveyed by Dow Jones had forecast a $13.0 billion advance. Thursday’s report shows that U.S. households–weighed down by the cumulative effects of a slowing jobs market, sluggish economic growth and political squabbling–are reluctant to rack up debt to buy everyday goods. That makes consumers unlikely to drive big economic gains. Other recent data echoes the consumer credit report. Americans during the third quarter increased their spending at a 1.5% pace, matching only one other quarter for the lowest spending growth since 2009, the Commerce Department said earlier Thursday in a separate report. While consumers stepped up spending on long-lasting items such as cars, they slowed spending on services.

Student And Car Loans Represent 99% Of All Loans Taken Out In Past Year - The September consumer credit print is out and once again, it shows just what the key drivers in the US economy are. Or rather is: it is the US government handing out unrepayable student and car loans, even as the general consumer is widely deleveraging. Looking at the numbers: of the $13.7 billion in total consumer credit created in September, $15.8 billion (no, it's not a typo) was non-revolving credit, i.e., auto and student loans. The remainder, or ($2 ) billion, was yet another month of credit card deleveraging, as the bulk Americans can only buy "stuff" if it comes with the implicit provision that the credit will never have to be repaid, such as when it comes from the most insolvent entity of all - Uncle Sam.

Real Median Household Incomes: ’’Heading in the Right Direction’’ - The Sentier Research monthly median household income data series is now available for September. Nominal median household incomes were up $293 month-over-month and $1,137 year-over-year. However, adjusted for inflation, real incomes increased only $199 MoM and are up only $532 YoY (0.1% and 0.7%, respectively). And these numbers do not factor in the expiration of the 2% FICA tax cut. The median real household income is down 6.8% since the beginning of the century but the latest data point is a new interim high since the post-recession trough. The traditional source of household income data is the Census Bureau, which publishes annual household income data in mid-September for the previous year. The 2012 annual updates were published last week.Sentier Research, an organization that focuses on income and demographics, offers a more up-to-date glimpse of household incomes by accessing the Census Bureau data and publishing monthly updates. Sentier Research has now released its most recent update, data through September (available here).  The first chart below is an overlay of the nominal values and real monthly values chained in September 2013 dollars. The red line illustrates the history of nominal median household, and the blue line shows the real (inflation-adjusted value). I've added callouts to show specific nominal and real monthly values for January 2000 start date and the peak and post-peak troughs.

Preliminary November Consumer Sentiment declines to 72.0 - The preliminary Reuters / University of Michigan consumer sentiment index for November was at 72.0, down from the October reading of 73.2.  This was below the consensus forecast of 75.0. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.The decline in October and early November was probably due to the government shutdown and another threat to "not pay the bills", but usually sentiment rebounds fairly quickly following event driven declines - and I expect the upward trend to continue soon.

End of Shutdown Doesn’t Boost Consumers’ Moods - U.S. consumers unexpectedly turned less optimistic about the economy in early November, according to data released Friday. The drop came despite the end of the government shutdown plus stronger October job creation may be lifting sentiment. The Thomson-Reuters/University of Michigan preliminary November sentiment index fell to 72.0, according to an economist who has seen the numbers. It was the lowest reading since December 2011. The government shutdown and debt-ceiling fight had pulled the index to an end-October reading of 73.2, which was down dramatically from an end-September level of 77.5. Economists surveyed by Dow Jones Newswires expected the early November index to increase to 74.4. The early November current conditions index dropped to 87.2 from a final October level of 89.9. The expectations index was little changed at 62.3 from 62.5.

Weekly Gasoline Update: Down Another Three Cents - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are both down by three cents. Regular and Premium are 52 cents and 47 cents, respectively, off their interim highs in late February.  According to, Hawaii is the only state averaging above $4.00 per gallon. For the second week, no states are reporting average prices in the 3.70-4.00 range. Four states (Missouri, Oklahoma, Arkansas and Texas) are averaging under $3.00.

U.S. Factory Orders Rise 1.7 Percent in September - Orders to U.S. factories rose in September on a big jump in commercial aircraft demand. But businesses cut back sharply on machinery and other goods that signal their confidence to expand, signs of slower economic growth. The Commerce Department said Monday that factory orders increased 1.7 percent in September from August. That followed a 0.1 percent decline in August and a 2.8 percent plunge in July.The September gain was driven by a 57.7 percent jump in demand for aircraft. But so-called core capital goods, which include machinery and electronics, fell 1.3 percent in September. And demand for machinery plummeted 23.6 percent, with big declines in construction machinery, electric turbines and generators. Orders for durable goods, items expected to last at least three years, increased 3.8 percent in September, largely on the airplane gains. The big rise in demand for aircraft helped offset a 0.7 percent dip in demand for autos and auto parts. That decline is expected to be temporary given the strength in auto sales this year. Demand for non-durable goods, such as chemicals, paper and food, edged down 0.2 percent.

Factory Orders Increase 1.7% for September 2013 - The Manufacturers' Shipments, Inventories, and Orders report shows factory new orders increased 1.7% for September.  Without transportation equipment, new orders decreased -0.2%.  August showed an overall -0.1% decline in new orders whereas July had a -2.8% plunge.  For Q3 factory orders looks none too good.  The Census manufacturing statistical release is called Factory Orders by the press and covers both durable and non-durable manufacturing orders, shipments and inventories.Transportation equipment new orders increased 12.9% , but the increase is volatile aircraft new orders. Motor vehicles bodies & parts new orders declined by -0.7%, whereas nondefense aircraft new orders increased 57.7% and these two sectors are the majority of transportation equipment manufacturing. Manufactured durable goods new orders, increased 3.8% for September, yet August durable goods new orders only increased 0.5% and July had a massive plunge, -8.1% in durable goods new orders leading to a negative Q3 for the sector.  Nondurable goods new orders decreased -0.2%, August -0.6%, but will have a positive quarter as July nondurable new orders grew by 2.3%. Core capital goods new orders decreased -1.3% for September after a 1.0% increase in August and a -3.5% plunge in July.  Core capital goods are capital or business investment goods and excludes defense and aircraft.  This implies a negative Q3 for investment and is probably the worst news in manufacturing. Graphed below are the revised durable goods news orders up to September.  Notice that durable goods new orders are just now hitting pre-recession 2008 levels.

Factory Orders Ex-Transports Decline For Second Month, Core CapEx Orders Drop 7.2% Annualized In Q3 -  Following the disappointing delayed durable goods print from last week, it was expected that today's Factory orders number would disappoint as well, and sure enough, it did not disappoint... in that expectation. With consensus looking for a 1.8% increase in September for the headline number, the delayed September number came out at 1.7% for the headline, the 6th miss in the past 9 months, while the ex-transport factory goods print dropped -0.2% following the August ex transports falling -0.4%. In other words, it was all transports once again, reflecting the rebound in orders for civilian aircraft as China's excess capacity bubble now seems to include all Boeing aircraft from 737 to 787. /p pA notable surge was seen in the 18% rise in defense spending, offset however by a 23% drop in Mining - looks like that Caterpillar renaissance is once again delayed. This happened in the context of inventories of manufactured durable goods rising $3.1 billion or 0.8 percent to all time high $382.3 billion in September.

Third Quarter Likely Dragged Down by Lackluster Business Spending - A pullback in capital investment this summer likely dragged down growth in the third quarter, signaling a potential risk to the U.S. economy in coming months.Orders for nondefense capital goods excluding aircraft, a closely watched gauge of business investment, declined a seasonally adjusted 3.7% in the period from July through September, according Commerce Department data released Monday. The decline reverses the better than 4% gain during the second quarter and stands in contrast to the sharp increase in capital expenditures during the early stages of the economic recovery.“Maybe we shouldn’t expect a big pickup in capital investment this late in the expansion,”  “We’re evaluating if the investment wave came and went. It’s unclear what will drive businesses to expand investment without stronger demand somewhere in the economy.” Business spending on capital goods — products such as machinery and computers — is an important barometer of the economy’s health. Demand for those goods boosts factory activity and shows companies are in expansion mode, making them more likely to hire and invest.

U.S. Service Firms Expanded More Quickly in October - Activity at U.S. service firms accelerated in October despite the partial government shutdown, boosted by a jump in sales and more hiring. The Institute of Supply Management says its service-sector index rose to 55.4 in October, up from 54.4 in September. The index hit an eight-year high of 58.6 in August. Any reading above 50 indicates expansion. A measure of sales fell jumped 4.6 points to 59.7. And a gauge of hiring rose 3.5 points to 56.2. The report measures growth in service industries, which cover 90 percent of the workforce, including retail, construction, health care and financial services.

ISM Non-Manufacturing Index at 55.4 indicates faster expansion in OctoberThe October ISM Non-manufacturing index was at 55.4%, up from 54.4% in September. The employment index increased in October to 56.2%, down from 52.7% in September. Note: Above 50 indicates expansion, below 50 contraction. From the Institute for Supply Management: October 2013 Non-Manufacturing ISM Report On Business® Economic activity in the non-manufacturing sector grew in October for the 46th consecutive month, "The NMI® registered 55.4 percent in October, 1 percentage point higher than September's reading of 54.4 percent. This indicates continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 59.7 percent, which is 4.6 percentage points higher than the 55.1 percent reported in September, reflecting growth for the 51st consecutive month. The New Orders Index decreased by 2.8 percentage points to 56.8 percent, and the Employment Index increased 3.5 percentage points to 56.2 percent, indicating growth in employment for the 15th consecutive month. The Prices Index decreased 1.1 percentage points to 56.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 10 non-manufacturing industries reported growth in October. This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was above the consensus forecast of 54.5% and indicates faster expansion in October than in September.

October Saw Faster Growth Than Expected -- The headline NMI Composite Index is at 55.5 percent, signaling faster growth than last month’s 54.5 percent. Today’s number came in above the forecast of 54.0, which was the same consensus posted by is the report summary: The NMI® registered 55.4 percent in October, 1 percentage point higher than September’s reading of 54.4 percent. This indicates continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 59.7 percent, which is 4.6 percentage points higher than the 55.1 percent reported in September, reflecting growth for the 51st consecutive month. The New Orders Index decreased by 2.8 percentage points to 56.8 percent, and the Employment Index increased 3.5 percentage points to 56.2 percent, indicating growth in employment for the 15th consecutive month. The Prices Index decreased 1.1 percentage points to 56.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 10 non-manufacturing industries reported growth in October. Respondents’ comments are mixed with the majority reflecting an uptick in business. A number of respondents indicate that they are negatively impacted by the government shutdown.  I have been reluctant to focus on this collection of diffusion indexes. For one thing, there is relatively little history for ISM’s Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

Vital Signs: Full Shelves but Order Books Are Fuller - Service companies are stocking up on the supplies they need. For now it looks as if the growth in demand justifies the inventory buildup. The Institute for Supply Management said Tuesday that non-manufacturers, mostly service providers, were busier in October, despite some worries about the government shutdown. A key positive in the report was the continued string of high new-orders readings that began in July. High levels of demand have led to companies laying in more supplies, such as retailers stockpiling merchandise to sell. Last week’s ISM factory report also showed manufacturers are booking more orders and building up inventories. As long as companies are accumulating inventories in response to rising demand, the extra supplies and goods-on-hand are not a risk to the economic outlook. The inventory sector probably lifted gross domestic product growth last quarter. Economists at both UBS and Morgan Stanley think inventory accumulation contributed 0.6 percentage points to an expected 2%-plus growth in third-quarter GDP. Commerce will release the delayed GDP report Thursday. While inventory growth is probably slowing this fourth quarter, stockpiling will only become a negative economic issue if demand drops in the future, because of more fiscal turmoil or a sudden downshift in job growth.

Retail: Seasonal Hiring vs. Retail Sales - Every year I track seasonal retail hiring for hints about holiday retail sales.  At the bottom of this post is a graph showing the correlation between seasonal hiring and retail sales. First, here is the NRF forecast for this year: NRF Forecasts Marginal Sales Gains This Holiday SeasonNRF expects sales in the months of November and December to marginally increase 3.9 percent to $602.1 billion, over 2012’s actual 3.5 percent holiday season sales growth. The forecast is higher than the 10-year average holiday sales growth of 3.3 percent. According to NRF, retailers are expected to hire between 720,000 and 780,000 seasonal workers this holiday season, in line with the actual 720,500 they hired in 2012, which was a 13 percent year-over-year increase from 2011. Note: NRF defines retail sales as including discounters, department stores, grocery stores, and specialty stores, and exclude sales at automotive dealers, gas stations, and restaurants.Here is a graph of retail hiring for previous years based on the BLS employment report:This graph shows the historical net retail jobs added for October, November and December by year.Retailers hired about 750 thousand seasonal workers last year (using BLS data, Not Seasonally Adjusted).  The NRF is expecting retail hiring at about the same rate this year.The scatter graph is for the years 1993 through 2012 and compares October retail hiring with the real increase (inflation adjusted) for retail sales (Q4 over previous Q4). In general October hiring is a pretty good indicator of seasonal sales. R-square is 0.72 for this small sample. Note: This uses retail sales in Q4, and excludes autos, gasoline and restaurants.

Holiday Spending "Hopes" Crumble As Income Gains Stagnate -- But this year was supposed to be different... Early-year prospects for a revival in consumer spending quickly faded in the wake of the lagged impact of the $148 billion tax hike that began the year. As Bloomberg's Joe Brusuelas notes in the following brief interview, combined with a slower pace of hiring and sluggish wage growth, the result will probably be another in a string of disappointing holiday shopping seasons. It is increasingly doubtful that consumers have the wherewithal to meet the ambitious National Retail Federation forecast for a 3.9% increase in holiday spending to $602.1 billion. Brusuelas believes a 2 to 2.5% increases appears closer to the mark given the economic and policy challenges in place this year.

U.S. Unemployment Benefit Applications Fall to 336,000 - The number of people seeking U.S. unemployment benefits fell 9,000 to a seasonally adjusted 336,000 last week, bringing applications to pre-recession levels.The Labor Department said Thursday that the less volatile four-week average dropped 9,250 to 348,250. The average was elevated by the 16-day partial government shutdown and backlogs in California that occurred because of computer upgrades. Weekly applications have fallen for four straight weeks. Applications are a proxy for layoffs. The decline suggests companies are cutting very few workers. Still, they are not hiring many new ones. Falling applications are typically followed by more job gains. But hiring has slowed in recent months, rather than accelerated. The economy added an average 143,000 jobs a month from July through September. That’s down from an average of 182,000 in April through June, and 207,000 during the first three months of the year.

New Jobless Claims Drop by 9K - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 336,000 new claims number was a 9,000 decline from the previous week's 345,000 (an upward revision from 340,000). The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, declined by 9,250 to 348,250. The financial press (e.g., Reuters) reports that decline in new claims was to some extent attributable to California resolving its computer glitches after a major upgrade a few weeks ago. In today's report California new claims dropped by 13,033. Here is the opening of the official statement from the Department of Labor:In the week ending November 2, the advance figure for seasonally adjusted initial claims was 336,000, a decrease of 9,000 from the previous week's revised figure of 345,000. The 4-week moving average was 348,250, a decrease of 9,250 from the previous week's revised average of 357,500.  The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 26, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 26 was 2,868,000, an increase of 4,000 from the preceding week's revised level of 2,864,000. The 4-week moving average was 2,866,000, a decrease of 8,500 from the preceding week's revised average of 2,874,500. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks.

US Adds 204K jobs, Unemployment rises to 7.3 pct. -— U.S. employers added 204,000 jobs in October, an unexpected burst of hiring during a month in which the federal government was partially shut down for 16 days.The Labor Department says the unemployment rate rose to 7.3 percent from 7.2 percent in September, likely because furloughed federal workers were counted as unemployed. The report noted that the shutdown did not affect total jobs. Employers also added 60,000 more jobs in the previous two months than earlier estimated. The figures suggest hiring has picked up in the fall. Employers added an average of 202,000 jobs from August through October, up from 146,000 from May through July. The percentage of Americans working or looking for work fell to a fresh 35-year low. But that figure was likely distorted by the shutdown, too.

October Employment Report: 204,000 Jobs, 7.3% Unemployment Rate - From the BLSTotal nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today. ... ... Among the unemployed, however, the number who reported being on temporary layoff increased by 448,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey. ... The civilian labor force was down by 720,000 in October. The labor force participation rate fell by 0.4 percentage point to 62.8 percent over the month. Total employment as measured by the household survey fell by 735,000 over the month and the employment-population ratio declined by 0.3 percentage point to 58.3 percent. This employment decline partly reflected a decline in federal government employment. ... The change in total nonfarm payroll employment for August was revised from +193,000 to +238,000, and the change for September was revised from +148,000 to +163,000. The headline number was well above expectations of 120,000 payroll jobs added. This graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions.  . Employment is still about 1% below the pre-recession peak.. The third shows the unemployment rate. The unemployment rate increased in October to 7.3% from 7.2% in September. This increase in the unemployment rate is probably related to the government shutdown - and should be reversed in the November employment report. The fourth graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate was declined sharply in October to 62.8% from 63.2% in September (related to shutdown). This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics. The Employment-Population ratio was declined in October to 58.3% from 58.6% in September (black line).

October’s nonfarm payrolls: 204,000 -- The jobless rate was 7.3 per cent, while 60k more jobs were added in revisions to August and September. Click for full tables on jobs added by industry and reasons for unemployment. Hourly earnings (up 2 cents) were still weak though. There’s an epic issue with divergence of the establishment survey and the household survey, which was down a whole 735k because of shutdown weirdness. Which might also make the participation rate (62.8 per cent) less than useful this time around. There’s a whole BLS FAQ on how the shutdown blew up their survey… Consensus had been 125k according to Reuters… with a survey spread of 50k to 195k. Interestingly, private payrolls (212k) seriously beat consensus (165k).

Establishment Survey: +204K Jobs, Household Survey: -735K Jobs, Unemployment Rate 7.3%; How Federal Layoffs Distorted the Picture - The already wide discrepancies between the household survey and the establishment survey took a wild leap today. The establishment survey showed a gain of 240,000 jobs but the household survey showed a drop in employment of -735,000. However, 448,000 thousand of those were due to temporary federal layoffs during the budget negotiations. I will go through my normal calculations, but they are very distorted by the temporary layoffs.  The BLS reports "Estimates of the unemployed by reason, such as temporary layoff and job leavers, do not sum to the official seasonally adjusted measure of total unemployed because they are independently seasonally adjusted. Household survey data for federal workers are available only on a not seasonally adjusted basis. As a result, over-the-month changes in federal worker data series cannot be compared with seasonally adjusted over-the-month changes in total employed and unemployed."This was the fourth straight month of revisions to the establishment survey. The first two revisions were significantly lower. Last month, the revision was slightly higher and I commented "Perhaps the BLS has numbers they are happy with now." So much for that idea. Today, the BLS reports "August revised up by 45,000 (from +193,000 to +238,000), and the employment change for September revised up by 15,000 (from +148,000 to +163,000).  The unemployment rate rose 0.1 to 7.3% (but according to the BLS it should have been higher due to estimated nonsampling error as noted in the commissioner's statement above).

  • Unemployment rate rose by 0.1 percentage points
  • Employment fell by 735,000
  • Those in the labor force fell by 720,000
  • The civilian population rose by 213,000.
  • The Participation Rate (The labor force as a percent of the civilian noninstitutional population) fell to 62.8%, smashing the previous low (tied last month) of 63.2% dating back to 1979.
  • Payrolls +204,000 - Establishment Survey
  • US Employment -735,000 - Household Survey
  • US Unemployment +17,000 - Household Survey
  • Involuntary Part-Time Work +124,000 - Household Survey
  • Voluntary Part-Time Work -181,000 - Household Survey
  • Baseline Unemployment Rate +0.1 to 7.3% - Household Survey
  • U-6 unemployment +0.2 to 13.8% - Household Survey
  • Civilian Labor Force -720,000 - Household Survey
  • Not in Labor Force +932,000 - Household Survey
  • Participation Rate -0.4 at 62.8 - Household Survey

Jobs Report: Upside Surprise on Payrolls! -- Payrolls were up 204,000 last month, well above expectations, and the unemployment rate ticked up slightly to 7.3%, due in part to the government shutdown, which lasted through the first half of the October. The payroll number is a big, upside surprise (MarketWatch called it “shockingly strong”).  Even though, as explained below, furloughed government workers were recorded as still on the payroll, analysts expected the impact of the shutdown on industries that depend on government activities to lead to a lower job count, around 120,000.  In fact, most industries other than government added to their payrolls last month.  In addition, payroll counts for the prior two months—Aug and Sept—were revised up by a total 60,000 jobs.These numbers paint a pretty different, and more positive, picture of recent job growth than even the last jobs report, which came out just a few weeks ago on Oct 22 due to the shutdown.  Averaging over the past three months, employment was up about 200,000 per month, compared to 150,000 in the prior three months.  That acceleration is more in keeping with yesterday’s report of 2013Q3 GDP growth, which also came in higher than expected. Results from the household survey, however, are less positive and more clearly reflective of the shutdown (though note also that this survey, with its smaller sample size, always has a lot more noise than the payroll survey).  Both the labor force and employment fell by more than 700,000 in the household survey last month, and the share of the population in the labor force fell a large 0.4 percentage points (it’s now the lowest its been since the late 1970s). These declines are clearly shutdown related, as furloughed government workers are counted as unemployed in the household survey but on-the-job in the payroll survey (I explain the differences in methodology below).  However, the BLS noted that because some furloughed gov’t workers were misclassified as with a job but absent from work, the jobless rate should have been slightly higher.

New Jobs at 204K Tops Forecasts, But Unemployment Rate Rises to 7.3% - Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in leisure and hospitality, retail trade, professional and technical services, manufacturing, and health care.  Today's report of 204K nonfarm number was dramatically higher than the forecast, which was for 125K new nonfarm jobs. However, was correct in forecasting a rise in the unemployment rate from 7.2% to 7.3%. The nonfarm jobs number for September was revised upward from 148K to 163K and the August number was revised upward from 193K to 238K for a combined gain of 60K from last month's report.To some degree today's numbers were impacted by the partial government shutdown, so it may be another month or two before we resume standard reliability in employment reporting. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948. The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.3% all-time peak in April 2010. The latest number is 2.6% -- matching the previous peak in 1983. This measure gives an alternative perspective on the relative severity of economic conditions.

Headline Employment Numbers for October Look Surprisingly Good but Fail to Reflect Full Impact of Government Shutdown -- The Bureau of Labor Statistics today released its report on the October employment situation. Observers who have been apprehensive about the impact of the partial government shutdown will find the headline numbers surprisingly good. Nonfarm payroll employment increased by 204,000 jobs. The unemployment rate was up, but only by a whisker, rising from 7.24 to 7.28. However, for a number of reasons, these numbers do not fully reflect the impact of the shutdown on the economy.Let’s begin with the payroll numbers, where the explanation is fairly simple. Payroll jobs are based on a survey of employers. They report how many employees worked or received pay for the pay period that included a certain reference date, in this case October 12th. Even though the reference date fell during the shutdown, all federal workers, whether on furlough or not, met this requirement, thanks to the generosity of Congress, who decided to award them back pay for days not worked. For that reason, the shutdown had no effect on the number of federal payroll employees. There could well have been effects in the private sector, for example, if a hotel near a national park sent workers home for the season who otherwise would have stayed through the end of October, but those effects were evidently small. What is more, payroll job numbers for August and September were revised upward by a total of 60,000 jobs. When we take both the new data and the revisions into account (as shown in the following chart), recent payroll numbers do not look at all bad. The 605,000 job gain over the three months from August through October is a healthy improvement from the 452,000 for May through June. (Of course, the September and October numbers are still subject to final revision, so this result could change.) Today’s report also appears to understate the impact of the government shutdown on the unemployment rate, but for a completely different reason. The BLS calculates the unemployment rate on the basis of a separate household survey in which its data collectors ask randomly selected individuals a series of questions. The classic definition of “unemployed” applies to people who answer “no” when asked if they worked for pay during the week in question and “yes” when asked if they actively looked for work. People who answer no to both questions normally count neither as employed nor in the labor force.

Where the Private Sector’s Gains Are - Government: bad. Private sector: good. That’s been the jobs story of the recovery for years now: America’s businesses have gotten back to hiring, despite uncertainty and cutbacks in Washington, adding 212,000 jobs in October and about 7.6 million over the past four years. Government employment, on the other hand, has drifted down over the past four years, with local, state and federal agencies shedding about 8,000 positions last month.But where is the private sector adding jobs? Despite the housing turnaround, employment has improved only modestly in that sector. Construction employment rose to 5.8 million in October from 5.6 million a year earlier. But before the recession hit, employment in that sector had climbed as high as 7.7 million. The jobs report “looked strong for the economy over all but weak for housing,” said Jed Kolko, the chief economist at Trulia. “Residential construction employment grew slowly and remains far below the pre-bubble level.” In addition, he said, “employment among young adults dropped,” an important indicator to watch for housing, as young people often drive new household formation. Rather, service industries have driven job growth in the recovery, adding 2.1 million jobs over the past year — 177,000 last month alone. In particular, the leisure and hospitality sector (establishments like restaurants, bars and hotels) has added workers at a strong clip, including 53,000 positions last month. The downside is that many of those jobs are part time and low pay. Average hourly earnings for employees in that sector are just $13.50.

Despite Mixed Headlines, Today’s Jobs Report is Still a Bummer -The October jobs report came as a bit of surprise for analysts who were expecting the government shutdown to severely affect job growth, as the Labor Department announced the economy added a pretty robust 204,000 new jobs in October. That’s on top of upward revisions of job-growth estimates in September and August, which showed the economy supported 60,000 more jobs than previously thought. These headline numbers can be a bit misleading however, and there are numbers deeper in the report that suggest that the shutdown had a pretty significant effect on the economy and employment. Furthermore, there’s plenty of evidence that shows that shutdown or no, the labor market simply isn’t recovering from the biggest issues facing it today. What were the most worrying indicators? Though the unemployment rate has fallen quickly over the past couple years, much of that decline is due to workers dropping out of the labor force altogether. That trend continued with this report, as the labor force participation rate declined by 0.4% to the lowest level since 1978:

The BLS Jobs Report Covering October 2013: Effects of the Shutdown Mostly Hidden But Still Large -- The October 2013 shutdown of the federal government affected seasonally unadjusted data in the Household survey only. It did not affect seasonally adjusted data in the Household survey or any data, adjusted or unadjusted, in the Establishment survey. Since official numbers, like the unemployment rate (7.3%) and jobs created (204,000), are seasonally adjusted, no effect from the government shutdown will be seen in them.  The shutdown appears to have affected 400,000+ federal employees. About half of these reported themselves as unemployed on temporary layoff and half as employed but not at work. The BLS considers that they all should have been designated as unemployed but did not correct the data. Again this only affects the seasonally unadjusted numbers. The unadjusted Household survey also shows wider negative effects most likely from the shutdown. The labor force declined 618,000. However, in 2011-2012, October was the fall peak for the labor force. Last October showed an increase of 704,000 in the labor. That is a swing of 1.322 million.  There is a disconnect in this month’s report. The unadjusted Household survey is the only part of the report which reflects, caveats and all, the effects of the government shutdown. I would expect the unadjusted jobs numbers from the Establishment survey to show some of the wider effects just mentioned, but it does not. Total nonfarm jobs increased 940,000 with 453,000 of these in the private sector and most of the rest in state and local education. This October’s increase in private sector jobs is somewhat better than last October’s increase of 406,000 jobs. That is significant because the Establishment survey (jobs) is more precise than the Household survey (employment), but it completely misses both the government shutdown and any ancillary effects of it. The big story here is that while unemployment as measured by the BLS changed little in October, the labor force and the employed declined significantly, and my counts of real unemployed (21+ million) and disemployed (~29 million), both current and trend, spiked. This represents a much larger effect than just what happened to federal employees in October. It could be fairly large ripple effects in the rest of the economy from the shutdown or it could be these and a general weakening in the economy.

Three Questions on the Jobs Picture - As I have noted on my blog, the jobs report for October came in a lot better than expected, especially on the payroll side.  Not only did the payroll growth of 204,000 cleanly clear the diminished expectations borne of the government shutdown, but the unemployment rate hardly changed at all, up from 7.24 percent to 7.28 percent.  On the other hand, the labor force really tanked — the participation rate fell 0.4 of a percentage point — a large monthly drop on top of an already depressed trend. So:

  • What’s up with job growth?  Is it stronger than we thought?
  • And if so, doesn’t that seem inconsistent with a tanking labor force?
  • Why didn’t the government shutdown show up in these data?

On the first point, the new data suggest that job growth is a bit stronger than we thought in the near term, though there’s no big difference in the trend.  We’re still adding jobs at a clip that will bring the jobless rate down only slowly, though here the labor-market dynamics matter in ways I’ll get to in a moment. .. That brings us to the second point. Here we’ve got the new, ugly October result noted above — the big decline in the labor force. I don’t think that number is right — meaning I think there’s something odd or noisy happening in the monthly participation data. But if that decline is overstated, it’s still pointing in a consistent direction: the negative trend in labor-force participation is really quite concerning. Finally, you just don’t see the shutdown in these numbers the way we expected to.  One reason is misclassification — furloughed government workers were supposed to be counted as unemployed, but some were registered as just being absent from work.  But outside of government, I didn’t see much from the payroll survey that would lead me to believe that the waiter in the cafe outside the shutdown national park was laid off.

Vital Signs: Temporary Laid-Off, Now Back to Work - Many economists expected the government shutdown had a large negative impact on the October jobless rate, with some expecting the rate to go as high as 7.6%. Instead the October unemployment rate edged up to 7.3% from 7.2% in September. The government workers on furlough show up in a jobless category called “unemployed on temporary layoff.” It’s a category usually used when factories close for a short-time to changeover to new product lines. In October, those on temporary layoff jumped to 1.5 million from an average of about 1.1 million in the previous 12 months. With these government employees now back on the job, expect their return to work to reduce the November jobless rate.

Are New Jobs Good Jobs? -- Employers added 204,000 jobs in October, the Labor Department said Friday, and numbers for August and September were revised up by a total of 60,000 jobs. The problem is nearly 100,000 of those new jobs in October came from just new sectors of the economy—restaurants and retail—which tend to pay workers less. The nation’s “leisure and hospitality” sector added 53,000 jobs, with one subcategory, food services and drinking places, adding about 29,000. That is roughly the average monthly contribution to job growth over the past 12 months by this subcategory, which has been a reliable job generator. Retail jobs grew by 44,000 last month, above its average of just over 30,000 over the last 12 months. Food and beverage stores added 12,000 jobs, while electronics and appliance stores added 10,000. Clothing-store jobs actually fell 13,000—possibly a sign of caution ahead of this year’s holiday-shopping season—though the National Retail Federation, a trade group, predicts that overall, retailers could hire an additional 720,000 to 780,000 employees this holiday season. All told, the economy has added about 2.3 million jobs over the last year as employment has fallen from 7.9% to 7.3%. During that time, more than 800,000 of those jobs have been in either retail or leisure and hospitality. Granted, other parts of the economy are creating jobs, too. It’s encouraging that America’s construction and manufacturing sectors helped fuel job growth in October, creating 11,000 and 19,000 jobs in October. But over the past 12 months, these sectors combined have produced a measly 240,000 jobs. While the housing market is recovering, it’s not yet creating a lot of jobs, while manufacturing—despite talk of a “renaissance”—has yet to even recover from the 2007-2009 recession.

623,000 Full Time Jobs Lost Last Month - So much for the surge in 691,000 full-time jobs in September. One short month later, indicating just what a farce the BLS's sampling process is, while the algo frenzy-inducing establishment survey showed a gain of 204,000 workers, the household survey had some other ideas. True, the headline household survey number rose by an almost identical 213,000 workers, however it is when trying to foot that number into the actual components, when one gets a headache. Because according to the same survey, a whopping 623,000 full-time workers (supposedly government) lost their jobs in October, nearly offsetting the entire 691,000 gain the month before which it turns out was purely for Obamacare (now hopelessly damaged) optics.  Ok, so to add up to the headline number at least part-time jobs should have soared right? Wrong. Because according to the BLS another 127K part-time jobs were lost in the month, for a total of 750K full- and part-time losses. In other words, the BLS' random number generator was working on overdrive once again.

Whopping 932,000 Americans Drop Out Of Labor Force In October; Participation Rate Drops To Fresh 35 Year Low - The only two charts that matter from today's distroted nonfarm payrolls report. First, the labor force participation rate, which plunged from 63.2% to 62.8% - the lowest since 1978! But more importantly, the number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans! This was the third highest monthly increase in people falling out of the labor force in US history.  At this pace the people out of the labor force will surpass the working Americans in about 4 years.

A Puzzlement on the Labor Force - Where did all the people go? The strangest number this month in the jobs report is the number for the labor force. It went down 720,000 from September. That is the largest monthly drop since December 2009. Is that real? Almost certainly not. So what happened? Some of it may relate to the government shutdown — although logically it should not have. Some may result from seasonal adjustments. But most of it seems to be related to the fact the household survey can be very volatile. The establishment survey, which polls employers and is used to calculate how may jobs were added, was relatively strong. It added 204,000 jobs. The household survey, which produces the unemployment rate, came up with that labor force oddity. It also reported a sharp fall in the number of people with jobs. Some of the confusion no doubt comes from the fact the two surveys were supposed to treat furloughed federal workers differently. They had jobs in the establishment survey but were unemployed for the household survey. To make that even more confusing, the government thinks some federal workers who were on furlough were miscounted in the household survey. But it thinks that miscounting caused them to be counted as employed, which would not explain the labor force decline. It is conceivable that a few of those workers were counted as being out of the labor force, although that should not have happened, given the way questions are phrased. Tom Nardone, the associate commissioner of the Bureau of Labor Statistics, tells me that confusion may account for no more than 20,000 or so of the labor force decrease, when other data are factored in. The household survey each month adds new households to the survey, and drops others. But among those who were on both the September and October surveys, the largest change went from employed to out of the labor force, Mr. Nardone said. That would seem to be a reason to think the decline may have some validity.

What’s Going On With the U.S. Labor Force? - The American labor force shrank by 720,000 in October, the Labor Department said Friday, the biggest one-month decline since 2009. As a share of the population, the labor force is now the smallest it’s been in 35 years. That suggests an acceleration of an already worrisome trend of declining labor force participation. But take Friday’s numbers with more than a grain of salt. The labor force is made up of two groups: those with jobs (the employed) and those actively looking for them (the unemployed). In October, the number of unemployed rose slightly, by 17,000, and the number of employed fell sharply, by 735,000. (These are separate figures from the payroll data, which are based on a survey of businesses and told a very different story in October.) The rise in unemployment was likely due largely to the government shutdown, which left tens of thousands of federal workers and contractors out of work. The number of people on “temporary layoff” rose by nearly half a million — far more than normal — and the number of people unemployed for less than five weeks rose by 165,000, even as layoffs, as measured by claims for unemployment benefits, remained low. In theory, the shutdown should have moved people from employed to unemployed, and left the size of the labor force as a whole largely untouched. But reality is more complicated. The jobs figures are based on a mind-bogglingly complex survey of roughly 60,000 households. In a detailed Q&A published Friday, the Labor Department says some people who should have counted as “unemployed” showed up as “employed.” But government economists say it’s possible that some people were misclassified as “not in the labor force,” too, though they say the number was likely small.Indeed, some 4.3 million people who were employed in September were out of the labor force in October, the largest number since the recession began. There’s no way to break down that data by industry or occupation, but it’s plausible that at least some of them were furloughed workers who were misclassified as out of the labor force.

October Unemployment Report Shows Almost a Million Drop Out of Labor Force - There were 932,000 more people considered not in the labor force for October 2013 according to the BLS employment report.  The labor participation rate plummeted to a new low of 62.8%.   Happy   While the month to month household survey figures vary greatly as a general rule, there is no government shutdown effect to explain away the monthly cliff dive of people no longer counted as part of the labor force this month.  This article overviews and graphs the statistics from the Current Population Survey of the employment report and this is one funky month.  Those not in the labor force now tallies to 91,541,000.  The below graph is the monthly change of the not in the labor force ranks.  As we can see almost a million added to the not in the labor force rolls in a month's time is not unprecedented. The most frightening statistic this month is the labor participation rate.  The labor participation rate plunged -0.4 percentage points to 62.8%.  This is the lowest labor participation rate since March 1978.  The labor participation rate has declined a full percentage point from a year ago.  This implies that those who were dropped from the labor force are staying out of the labor force in large numbers.   The -0.4 percentage point drop represents about 986 thousand people who are not considered part of the labor force anymore.  Over the past year 3.134 million people have dropped out of the labor force.  That is an astounding figure.  Even with the survey monthly variance, even 2 million dropping out of the labor force in a year is beyond comprehension.  For those claiming the low labor participation rate is just people retired, we proved that false by analyzing labor participation rates by age, back in 2012.  While we hope to update this analysis for 2013.  In the interim, in the past year the the general population of those aged 55 and over, not in the military, infirm or locked up somewhere has increased by 2.2 million.  In other words, the dramatic increase of those not in the labor force cannot be everyone retiring who is age 55 and over.

Comparing Jobs in Recessions and Recoveries - For the 37th consecutive month, the country added jobs: 204,000 nonfarm payroll jobs in October, to be more precise. But employment still has a long way to go before returning to its pre-recession level. The chart above shows economic job changes in this last recession and recovery compared with other recent ones; the red line represents the current cycle. Since the downturn began in December 2007, the economy has had a net decline of about 1.1 percent in its nonfarm payroll jobs. And that does not account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy there should be more jobs today than there were before the recession. Let’s assume we eventually return to pre-recession employment levels while absorbing all the new people who should enter the labor force each month during a healthier economy. If you believe that we will get back to the labor force participation rate that we had when the recession ended in June 2009, we would need more than seven years of monthly job growth at October’s pace to reach a jobless rate of 6 percent. (There is disagreement about whether the labor force participation rate will ever rise to what it was a few years ago, though; you can run your own job creation projections under different labor market assumptions using this nifty calculator.) There are now 11.3 million people looking for work who cannot find it. The tally of those who are underemployed — that is, adding in those workers who are part time but want to be employed full time, and workers who want to work but are not looking — brings the total up to 21.7 million.

Employment Report: Solid Report ex-Government Shutdown, Seasonal Retail Hiring highest since 1999 -- A few key points:
• The government shutdown impacted the unemployment rate and the participation rate. This impact from the shutdown should be reversed in the November report.
• Overall this was a solid employment report (except the impact of the government shutdown).
• Last weekend I noted four items that the Fed would probably be looking at to taper in December. Here were the two related to employment:
1) "If the unemployment rate declines back to 7.2% or so in November (the September rate), then the FOMC might taper." Since the unemployment rate only increased to 7.3% in October, it appears likely this will be met (the Fed will probably be looking for a bounce back in the participation rate in November too).
2) "If the year-over-year change in employment is still around 2.2 million for November, the FOMC might taper." Employment was up 2.329 million year-over-year in October. It appears very likely this level will be met in the November report. According to the BLS employment report, retailers hired seasonal workers in October at the highest level since 1999. Click on graph for larger image. Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year. This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping. Retailers hired 159.5 thousand workers (NSA) net in October. This is about the same as in 2004, and the highest since 1999. Note: this is NSA (Not Seasonally Adjusted). This suggests retailers are somewhat optimistic about the holiday season. Note: There is a decent correlation between seasonal retail hiring and holiday retail sales

Little Lasting Shutdown Impact Seen on Labor Market - October’s partial government shutdown nudged the nation’s unemployment rate higher, but it had little noticeable effect on other key labor-market gauges. Associated Press The jobless rate rose to 7.3% last month from 7.2% in September, halting the downward trend of recent months, the Labor Department’s monthly employment report showed Friday. The report said the increase reflected the largest-ever mass furlough of federal government employees during the 16-day shutdown in October. The department said there were 223,000 federal workers temporarily laid off during its Oct. 6-Oct 12 survey period, roughly 200,000 more than in prior months. These workers are classified as unemployed. The federal government, which shut down due to a political impasse over federal spending and the nation’s borrowing authority, initially furloughed around 850,000 employees, though the Pentagon recalled most of its 350,000 civilian workers a week into the shutdown. Labor said “there were no discernible impacts” of the government shutdown in a separate survey that measures payroll numbers, wages and hours worked. According to the definitions used in this survey, workers reported to be furloughed on Oct. 12 would be counted as employed. The payroll survey reported a 204,000 gain in October payrolls and revised upward tallies for August and September by a combined 60,000. Private sector jobs rose by 212,000, the best gain since February.

The October jobs report: Shutdown, signal, and noise - Data which describe October’s labor market were released this morning, one week behind scheduled thanks to the government shutdown. But it’s very hard to interpret. Why? Because the government shutdown injected a lot of noise into October’s data. The government was shut down from October 1st through October 16th. That is important, because the unemployment rate was calculated by asking workers whether they were employed during the week of October 6th through the 12th; right in the midst of the shutdown. Although the Department of Defense recalled around 350,000 workers by the end of the first week of the shutdown, there were still nearly half a million federal workers out of work during the week of October 6th – 12th. Since those workers were expecting a recall, the Bureau of Labor Statistics (BLS) should classify them as unemployed on a temporary layoff, even though we wouldn’t really think of them as being unemployed when trying to assess the overall state of the labor market. It turns out that everything didn’t go according to plan. The BLS reports that while there was a jump in the number of federal workers classified as unemployed on a temporary layoff, “there also was an increase in the number of federal workers who were classified as employed but absent from work. BLS analysis of the data indicates that this group included federal workers affected by the shutdown who also should have been classified as unemployed on temporary layoff.” The BLS did the right thing by not reassigning survey responses. But it makes the data extremely hard to interpret. And the confusion is not restricted to federal workers. Data collection was scheduled to begin on October 13th, but since the government was shut down, data collection couldn’t start until October 20th. This increases the probability that some workers – private-sector and government – may not remember what they were doing the week of October 6th – 12th, or may be confused in some other way. Will the change in the method of collecting data have a sizeable effect on the measured unemployment rate? It’s impossible to say for sure. But as economist Justin Wolfers pointed out on Twitter, small changes in methods can have big effects. The October report finds that there are 735,000 fewer employed workers in the economy than in September, and that the number of unemployed rose by 17,000. Despite that, the unemployment rate is basically unchanged from September at 7.3%.

The GIGO jobs report -- This is undoubtedly the most distorted jobs report in living memory. Scroll down a bit, and you get to a whole box entitled “Partial Federal Government Shutdown”, which explains that for a multitude of reasons, the amount of “nonsampling error” in this report is going to be much bigger than it normally is — and yet, the BLS also made the correct decision that for the sake of “data integrity”, it was not going to try to correct for any of those nonsampling errors. The markets, however, are hard-wired to take the payrolls report seriously, especially right now. We had a very strong GDP report yesterday, which was itself subject to all the same errors and omissions, and there’s something more generally febrile about the broader atmosphere: yesterday alone saw an unexpected rate cut in Europe, as well as a decidedly frothy first-day valuation for Twitter. On top of all that, we’re still in the very heart of good-news-is-bad-news territory, where traders only care about when the famous Taper will begin. The stronger the data, the more worried they become, and the more that stocks and bonds sell off. For one thing, it’s possible (anything’s possible) that, thanks to the strength of this report, Ben Bernanke, at the very end of his final term in office, will decide to kick off the last full week before the Christmas break with a tapering announcement. But it’s not very likely. The report is unreliable, thanks to the shutdown; the timing would be perverse, needlessly constraining his successor’s option space; and, most importantly, the Fed just isn’t seeing the kind of increased inflation which would cause it serious concern. Just this morning, we saw the release of inflation data for personal consumption expenditures — that’s the number the Fed likes to concentrate on most, even more than CPI. And the number came in at just 0.1%. Nothing to worry about there.

In Part-Time Jobs, Women Outearn Men -- The oft-lamented gender wage gap disappears and actually reverses when only part-time workers are considered, according to a new data release from the Bureau of Labor Statistics. Among workers who usually work part time (that is, under 35 hours), the median usual weekly earnings of women were 110 percent of that for men in 2012. For full-timers (35 hours and up), the median female worker made about 81 percent of what the median male worker made. Oddly, for the part-timers who worked the fewest hours — that is one to four hours a week — the wage gap still went in men’s favor.  These numbers, of course, probably reflect which kinds of jobs correlate with certain numbers of hours per week. In other words, the kind of three-hour-per-week position that a woman is more likely to take may happen to be in a lower-paying occupation than the kind of three-hour-per-week position that a man is more likely to take. Even within occupations, though, there are differences in pay. That same report also had an extensive table showing the median wage gap by occupation for all full-time workers (see Table 2). Note that these numbers are for median workers logging at least 35 hours in an occupation, and do not control for how many hours are worked beyond that 35-hour threshold. Here are some of the occupations that offer the greatest parity, and the least:

Unemployment Benefits Set To Expire For 1.3 Million At End Of Year-- More than a million Americans will lose unemployment insurance at the end of the year unless Congress takes action, according to a worker advocacy group. The National Employment Law Project said Wednesday that the 1.3 million Americans currently receiving long-term unemployment insurance will abruptly lose federal benefits, which kick in once state aid runs out, between Christmas and the new year. In the ensuing months, another 850,000 jobless workers will run out of state benefits and not receive an extension."Congress cannot conscionably ignore or dismiss the economic realities facing far too many unemployed workers and their families," NELP director Christine Owens said in a press release.Flirting with a holiday deadline for unemployment benefits has been a familiar congressional ritual during the Obama administration. Last year, Democrats successfully won a continuation of benefits through a deal to resolve the so-called fiscal cliff. In 2011, Congress attached a reauthorization of the benefits to an expiring payroll tax cut. The year before that, lawmakers attached the benefits to an extension of Bush-era tax cuts for the rich.  But policymakers haven't said anything about the benefits lately.

Unemployment benefits for 2.1 million workers are set to expire early next year - More than 2 million out-of-work Americans will lose their unemployment benefits early next year unless Congress extends a jobless-aid program that's set to expire, a new report warns. Here's the back story: The United States currently has about 4.1 million workers who have been out of a job for at least six months. About one-third of them are still scraping by with help from an unemployment-benefit program that Congress temporarily expanded in 2008 in response to the financial crisis and severe recession.  But that's all set to change soon. On Dec. 31, the federally funded Emergency Unemployment Compensation program is slated to expire. Once that happens, jobless aid programs will largely shrink to their pre-recession states, and millions of people will lose their unemployment benefits. The report (pdf), from the National Employment Law Project, estimates that 1.3 million jobless workers will lose their benefits immediately at the start of 2014. Another 850,000 workers will exhaust their regular unemployment insurance in March and won't be able to take advantage of the expanded benefits:

Median wage falls to lowest level since 1998 - Last year the median wage hit its lowest level since 1998, revealing that at least half of American workers are being left behind as the economy slowly recovers from the Great Recession. But at the top, wages soared — the latest indication in a long-running trend of increasing inequality, with income gains going to top earners while the majority of workers see stagnant or falling wages. Al Jazeera is the first news organization to report these figures from the Social Security Administration (SSA), which were released late in October. The median wage — half of workers make more, half less — came to $27,519 last year, virtually unchanged from 2011. Measured in 2012 dollars, the median wage was down $4. The 2012 median wage was at its lowest level since 1998, when the median stood at $26,984. From its all-time peak in 2007, the median wage was down $980. That means someone at the midpoint in pay worked 52 weeks last year but earned about the equivalent of working just 50 weeks at 2007 pay levels, the last peak year for the economy. The average wage, on the other hand, improved last year. It increased to $42,498, up $434, or 1 percent from 2011 after considering inflation. But the average wage remained below its $42,921 peak in 2007, I calculated from the SSA data.

The Legislative Attack on American Wages and Labor Standards -- In 2011 and 2012, state legislatures undertook numerous efforts to undermine wages and labor standards:

  • Four states passed laws restricting the minimum wage, four lifted restrictions on child labor, and 16 imposed new limits on benefits for the unemployed.
  • States also passed laws stripping workers of overtime rights, repealing or restricting rights to sick leave, undermining workplace safety protections, and making it harder to sue one’s employer for race or sex discrimination.
  • Legislation has been pursued making it harder for employees to recover unpaid wages (i.e., wage theft) and banning local cities and counties from establishing minimum wages or rights to sick leave.
  • For the 93 percent of private-sector employees who have no union contract, laws on matters such as wages and sick time define employment standards and rights on the job. Thus, this agenda to undermine wages and working conditions is aimed primarily at non-union, private-sector employees.

These efforts provide important context for the much-better-publicized moves to undermine public employee unions. By far the most galvanizing and most widely reported legislative battle of the past two years was Wisconsin Gov. Scott Walker’s “budget repair bill” that, in early 2011, largely eliminated collective bargaining rights for the state’s 175,000 public employees.1 Following this, in 2011 and 2012:

  • Fifteen states passed laws restricting public employees’ collective bargaining rights or ability to collect “fair share” dues through payroll deductions.2
  • Nineteen states introduced “right-to-work” bills, and “right-to-work” laws affecting private-sector collective bargaining agreements were enacted in Michigan and Indiana.

How Washington Abandoned America's Unpaid Interns - Internships have expanded to become a rite of passage for young workers. But often, they are entry-level jobs that pay entry-level salaries of exactly zero. For a country with minimum wage laws and a general sense that equal work deserves equal pay, this strikes many—but not all—as scandalous. In June, a Federal District Court judge ruled against Fox Searchlight Pictures, deeming their unpaid internships illegitimate. But in October, another case concluded that inappropriately treated interns cannot file suit for sexual harassment because they are not, technically, employees. Other suits, for example against Conde Nast (which has ended its internship program), and homemade insurrections, like at The Nation (who will now pay interns), have had scattered success. Without a law, regulation, government division head, official advocate, or BLS statistic, interns will continue to work without pay in a legal vacuum.  By withholding all compensation, unpaid internships both discriminate against low-income students who might benefit from the experience and skirt the basic principle of a minimum wage. By operating in a legal gray zone, they are prone to nepotism and lack key protections given to all other laborers.  The problems with modern internships are expansive, and the possible remedies—from lawsuits, to open letters, to interesting financing options—have been creative. But we’ve directed our attention except the most natural target: the Department of Labor itself.

The Sloth Effect - As I pointed out in my previous post, conventional measures of marginal tax rates assume that taxpayers derive no utility whatsoever from the taxes they pay, even if those taxes are paying for their health insurance and retirement security.Conventional approaches to labor supply also tend to define labor very narrowly, in terms of participation in paid employment. Broaden that definition to include participation in both the underground economy and the family economy and you will see why taxes can increase some aspects of labor supply even as they decrease others.The so-called underground economy, consisting of cash transactions that go unrecorded and escape capture by income or payroll taxes, has expanded in recent years, partly because of efforts to evade those taxes. But the increase in under-the-table transactions during recessions in particular is driven by economic desperation, with individuals picking up short-term informal jobs or resorting to illegal trafficking in drugs or sex. The end result is that official statistics significantly understate work being performed, especially during recessions. Does that imply that a labor market without the “distortions” of taxes or regulation is best? If sloth is the only sin you’re worried about, it might. If you’re worried about illegal activities that pose a threat to the well-being of the community as a whole, you will likely reach a different conclusion.

 Chart of the Day: The Collapse of the American Middle Class -- Via Harrison Jacobs, here's a recent study showing the trend in income segregation in American neighborhoods. Forty years ago, 65 percent of us lived in middle-income neighborhoods. Today, that number is only 42 percent. The rest of us live either in rich neighborhoods or in poor neighborhoods. This is yet another sign of the collapse of the American middle class, and it's a bad omen for the American political system. We increasingly lack a shared culture or shared experiences, and that makes democracy a tough act to pull off. The well-off have less and less interaction with the poor outside of the market economy, and less and less empathy for how they live their lives. For too many of us, the "general welfare" these days is just an academic abstraction, not a lived experience.

$10 Minimum Wage Proposal Has Growing Support From White House - The White House has thrown its weight behind a proposal to raise the federal minimum wage to at least $10 an hour. “The president has long supported raising the minimum wage so hard-working Americans can have a decent wage for a day’s work to support their families and make ends meet,” a White House official said.  President Obama, the official continued, supports the Harkin-Miller bill, also known as the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 an hour, from its current $7.25.  The legislation is sponsored in the Senate by Tom Harkin of Iowa and in the House by George Miller of California, both Democrats. It would raise the minimum wage — in three steps of 95 cents each, taking place over two years — to $10.10, and then index it to inflation. The legislation will probably be coupled with some tax sweeteners for small businesses, traditionally the loudest opponents of increases to the minimum wage.  “The combination of an increase to $10.10 and some breaks for small business on expensing unite virtually the whole Democratic caucus, and we are prepared to move forward shortly,” said Senator Charles E. Schumer of New York, the Senate’s third-ranking Democrat.

When the rich no longer need common infrastructure - The rich have always needed the middle class to work in their factories and buy their products. With globalization this is  no longer true. Their factories can be in China, producing goods for people in India or Europe or anywhere else in the world.  They don't need our infrastructure for their  yachts and helicopters and  submarines. They pay for private schools for their kids, private security for their homes. They have  private emergency rooms to avoid the health care hassle. All they need is an assortment of servants, who might be guest workers coming to America on  H2B visas, willing to work for less than a middle-class American can afford.  The sentiment is spreading from the super-rich to the merely rich. In 2005  Sandy Springs, a wealthy suburb of Atlanta, stopped paying for most public services, deciding instead to avoid subsidizing poorer residents of Fulton County by hiring a "city outsourcer" called  CH2M to manage everything except the police and fire departments. That includes paving the roads, running the courts, issuing tickets, handling waste, and various other public services. Several other towns followed suit. Results have been mixed, with some of CH2M's clients backing out or renegotiating. But privatization keeps coming at us. Selective decisions about public services threaten to worsen already destitute conditions for many communities.  Detroit, of course, is at the forefront. According to an Urban Land Institute  report, "more municipalities may follow Detroit's example and abandon services in certain districts."

Heritage’s Ruinous Recommendations for the U.S. Postal Service - The new Heritage Foundation background paper (Gattuso 2013) on the future of the U.S. Postal Service (USPS) is a self-contradictory, poorly analyzed review of the Postal Service’s finances that concludes with recommendations that would, with one partial exception, be disastrous. This policy memo will discuss the flaws in the Heritage report and make a very different set of recommendations. In summary, Heritage’s Can the Postal Service Have a Future? has the following flaws:

  • It fails to recognize the damage Congress has inflicted on Postal Service finances.
  • It wrongly supports a disastrous, congressionally imposed prefunding requirement for retiree health benefits.
  • It fails to recognize that the Postal Service’s revenues are recovering from the Great Recession, and that its cost-cutting has been effective.
  • It recommends elimination of the traditional letter-mail monopoly, which would effectively end universal access to mail delivery—the Postal Service’s core purpose.
  • It pretends to support competitive freedom for USPS but would add new restraints.

Congress can quickly restore USPS to health by doing the following:

  • Ending the arbitrary, congressionally imposed requirement that USPS prefund retiree health benefits
  • More fairly allocating pre-1971 pension obligations between USPS and the Office of Personnel Management
  • Freeing USPS from restraints on its pricing
  • Removing restrictions that currently prevent USPS from offering nonpostal services

Daily Meme: Congress Hits America’s Poorest While They’re Down --Starting today, millions of Americans who rely on the Supplemental Nutrition Assistance Program (SNAP)—better known as food stamps—will see their benefits drop now that the temporary increase instituted by the Obama administration's stimulus package has not been renewed. 

  • That means the extra $45.2 billion appropriated by the 2009 American Recovery and Reinvestment Act have now evaporated from the budget.
  • The cut will affect 47 million Americans, half of whom are children under 18. That's nearly 15 percent of the population.
  • The farm bill currently ricocheting between the House and Senate would cut benefits even more, possibly as much as a $4 billion annual drop in funding. 
  • Food stamps have become an increasingly important benefit for our nation's poorest families. Since 2008, enrollment has grown by 70 percent.
  • Businesses in impoverished communities increasingly rely on SNAP customers for profits—economists estimated that the growth rate on our gross domestic product could shrink by 0.1 percentage points because of the cuts.
  • Dollar General, Family Dollar, and Wal-Mart will likely be the retailers who notice the drop in spending the most. 
  • The cuts will range from $11 to $36 per month.

    Food stamps - This is vile, it stinks to heaven.  I used to be pretty good at teaching public policy in a non-partisan manner (we have some of my former students reading this blog and if I’m wrong, don’t hold back) but the last decade or so has really cramped my style, hooboy.  The insouciant cruelty of fat and happy Republicans simpering about making hungry children dependent (are there no poorhouses?  do the mills not offer employment to a deft eight-year old?) after they engineered the budget deficits they have now decided to rail about, and carried water for the “job-creators” who feathered their nests giving us the recession that’s put so many people on the street and on food stamps, is simply Dickensian.  Eric Cantor is a horrible person, whipping a gang of racists and ignorant, fearful, haters into increasingly unspeakable behavior with fake moralizing and outright lies. And the horse’s asses he rode in on. Medicaid expansion, too.  Mississippi, our own Haiti, land of poverty, despair, and early death, turns down free federal money in order that its poorest don’t get medical care?  It can’t even be selfishness among the plutocrats: how is it good for business that its workforce is sicker?  It’s simply cruelty, far beyond the possible bounds of policy debate or the scope of ideology, an abomination no religion can countenance. What did these people’s parents raise them to be? What were they told in Sunday School? I give up, I’m not up to this.  But luckily, there is Käthe Kollwitz.

    We Need a Robin Hood Tax—Not Cuts in Food Stamps - We need Robin Hood and his merry band of wealth redistribution specialists not just on Halloween but every day, and this year in particular we need him on November 1.  That’s when $332 million in cuts to the food stamp or SNAP program went into effect. Three point one million low-wage workers, seniors, veterans and children are losing urgently needed aid.  And that’s just the cuts the President and Congress enacted in 2010. We need Robin Hood because Congress is talking about taking $39 billion more. And we need Robin because while 1.2 million poor children are going to be eating even less, 400 already rich Americans are enjoying even more. Take a look at the Forbes 400 List. While the working poor have taken cut after cut, the richest Americans have seen their wealth double in the last ten years. We need Robin Hood because between them those 400 are worth just over $2 trillion dollars. That’s two thousand billion. We only need the small change on that to stop those food stamp cuts. Robin Hood would know what to do.

    Walmart Is One Of The Biggest Beneficiaries Of Food Stamps - One of the major beneficiaries of the nation's food-stamp program is actually a hugely profitable company: Walmart.  Americans spend about 18 percent of all food stamp dollars at Walmart, according to company estimates told to the Wall Street Journal and confirmed by The Huffington Post. That's about $14 billion of the $80 billion Congress set aside for food stamps last year. The company's total profits for 2013 were $17 billion.The news comes just as food-stamp benefits are about to be cut for 47 million Americans. On Friday, a key provision boosting the program is set to expire. After that, 47 million Americans will struggle even more than usual to afford the basics. Walmart isn't too concerned: When shoppers become more concerned about price, they’re more likely to turn to Walmart, Bill Simon, the retailer’s U.S. CEO, said at an analyst meeting earlier this month.  Walmart has historically lobbied around food stamps, according to a report from Eat Drink Politics, an advocacy group. In addition, the company also worked with First Lady Michelle Obama in 2011 on the Great American Family Dinner Challenge, a push to get families to eat healthy on a food-stamp budget.  “A significant percentage of all SNAP dollars are spent in our stores, and they are used to buy items like bananas, whole milk, Ramen noodles, and hot dogs,”

    Walmart Is Trying to Block Workers’ Disability Benefits -  Last month, the Supreme Court heard arguments in a case brought by Julie Heimeshoff, a Walmart employee who sued the company and its insurance provider in 2010 for refusing to pay her disability benefits. Heimeshoff worked at Walmart for nearly 20 years, most recently as a public relations manager. About 10 years ago, she was diagnosed with fibromyalgia, lupus, and other chronic pain problems, and in June 2005, the pain became so severe that she had to stop working. Heimeshoff applied for disability benefits and, after a long internal review, her claim was denied. She sued over the denial of benefits less than three years later. That was within the statute of limitations—or so she thought.When Heimeshoff started working for Walmart, she signed a contract saying that if she were ever denied disability benefits, she could only sue the company for wrongful denial of benefits if she did so within three years of filing her disability claim. But the US government and consumer lawyers say that Walmart's contract is bunk, because established law stipulates that the clock doesn't start ticking on those three years until an employee's claim for benefits is improperly denied. A ruling in Walmart's favor could make it more difficult for millions of workers—not just people who work for Walmart—to obtain disability benefits.

    Why Washington Is Cutting Safety Nets When Most Americans Are Still in the Great Recession - Robert Reich -  As of November 1 more than 47 million Americans have lost some or all of their food stamp benefits. House Republicans are pushing for further cuts. If the sequester isn’t stopped everything else poor and working-class Americans depend on will be further squeezed. We’re not talking about a small sliver of America here. Half of all children get food stamps at some point during their childhood. Half of all adults get them sometime between ages 18 and 65. Many employers – including the nation’s largest, Walmart – now pay so little that food stamps are necessary in order to keep food on the family table, and other forms of assistance are required to keep a roof overhead.   The larger reality is that most Americans are still living in the Great Recession. Median household income continues to drop. In last week’s Washington Post-ABC poll, 75 percent rated the state of the economy as “negative” or “poor.”  So why is Washington whacking safety nets and services that a large portion of Americans need, when we still very much need them? Here’s a clue: A new survey of families in the top 10 percent of net worth (done by the American Affluence Research Center) shows they’re feeling better than they’ve felt since 2007, before the Great Recession.  It’s not just that the top 10 percent have jobs and their wages are rising. The top 10 percent also owns 80 percent of the stock market. And the stock market is up a whopping 24 percent this year.  Congress, meanwhile, doesn’t know much about the bottom 90 percent. The top 10 percent provide almost all campaign contributions and funding of “independent” ads.

    Ten States Have Banned Cities And Counties From Passing Paid Sick Days -- Ten states — Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, North Carolina, Tennessee, and Wisconsin — have passed preemption laws that ban all cities and counties from enacting paid sick days bills, according to an analysis from the Economic Policy Institute.  As can be seen from the chart, momentum has picked up recently, with seven of those laws passed this year alone. They have also been introduced in at least 14 state legislatures, and Pennsylvania is currently considering one that was introduced in October.. As the report notes, “In each of the ten states, the bills’ sponsors included members of the American Legislative Exchange Council (ALEC). And in each case, the bills were adopted following vigorous advocacy by corporate lobbies such as the Chamber of Commerce, National Federation of Independent Business, and Restaurant Association.”  Yet even though these business opponents claim that paid sick days would create unbearable costs, the evidence from those places that do have paid sick leave shows that they can be beneficial. Business growth and job growth have been strong under Seattle’s law. Job growth has also been strong in San Francisco and its law enjoys strong business support. The policies in Washington, DC and Connecticut have come at little cost for businesses. In fact, expanding DC’s current law would net employers $2 million in savings even with potential costs factored in.

    Republicans make the poor pay to balance the budget - Last Friday, 47 million Americans had their food stamp benefits cut. These provide assistance to those who lack sufficient money to feed themselves and their families. Individuals lose $11 (£7) a month while a family of four will lose $36. That will save the public purse precious little – bombing Syria would have been far more costly – but will mean a great deal to those affected. "Before the cut, it was kind of an assumption you were going to the food bank anyway," Lance Worth, of Washington state, told the Bellingham Herald. "I guess I'm just going to go $20 hungrier – aren't I?" The cut marks the lapse in stimulus package ushered in four years ago. But while the recession is officially over, the poverty it engendered remains. Government figures show one in seven Americans is food insecure. According to Gallup, in August, one in five said they have, at times during the last year, lacked money to buy food that they or their families needed. Both figures are roughly the same as when Obama was elected. This negligence will now be compounded by mendacity. Republicans propose further swingeing cuts to the food-stamp programme; Democrats suggest smaller cuts. The question is not whether the vulnerable will be hammered, but by how much. The impetus behind these cuts are not fiscal but ideological. Republicans, in particular, claim the poor have it too easy. "We don't want to turn the safety net into a hammock that lulls able-bodied people into lives of dependency and complacency," claimed former Republican vice-presidential candidate Paul Ryan. "That drains them of their will and their incentive to make the most of their lives."

    America: Rumors of Food Riots, Realities of War - The Department of Homeland Security (DHS) spent $80M to fortify federal buildings in New York apparently in preparation for civil disturbances and possible food riots on November 1st. The DHS plans included armed private guards who would protect IRS and other buildings against attack by fellow Americans. Other officials joined in ringing an alarm bell.  The proximate cause of the expected unrest was November 1st cuts to the food stamp program, which resulted from the expiration of a 2009 stimulus bill. The New York Times estimated that benefits for a family of four will fall $36 a month; for a single adult, it will fall $11. The most current data available (July) indicates that nearly 48 million Americans are on food stamps, or approximately one-seventh of the population. More reductions are expected over coming months as a result of Congressional renegotiations on a farm bill.

    Cut in Food Stamps Forces Hard Choices on Poor - For many, a $10 or $20 cut in the monthly food budget would be absorbed with little notice. But for millions of poor Americans who rely on food stamps, reductions that began this month present awful choices. One gallon of milk for the kids instead of two. No fresh broccoli for dinner or snacks to take to school. Weeks of grits and margarine for breakfast. And for many, it will mean turning to a food pantry or a soup kitchen by the middle of the month. “I don’t need a whole lot to eat,” said Leon Simmons, 63, who spends more than half of his monthly $832 Social Security income to rent a room in an East Charleston house. “But this month I know I’m not going to buy any meats.” Mr. Simmons’s allotment from the federal Supplemental Nutrition Assistance Program, commonly called food stamps, has dropped $9. He has already spent the $33 he received for November. The reduction in benefits has affected more than 47 million people like Mr. Simmons. It is the largest wholesale cut in the program since Congress passed the first Food Stamps Act in 1964 and touches about one in every seven Americans.

    Food Stamp Cuts Will Bring Hardship for the Holidays - The beginning of November always marks the start of the holiday season. On the morning of November 1st, stores swapped out their Halloween displays for Christmas decorations and radio stations began playing round-the-clock carols. But November 1 marked something else for nearly 48 million who receive food stamps: an automatic reduction in the already modest benefits. The cut, which comes from the expiration of a boost included in the 2009 stimulus bill, will reduce benefits from the Supplemental Nutrition Assistance Program (SNAP) by an average of 7 percent. That will mean a loss of about $9 per person per month or $36 a month for a family of four. Food stamps will now be, on average, less than $1.40 per person per meal. The cut would hurt at any time of the year, but it will be especially painful because of the coincidence with the holiday season, already a struggle for many low-income families. A big part of the challenge is that both Thanksgiving and Christmas are at the end of each month, a time when SNAP benefits often run out. “If we aren’t able to stretch those dollars that far, well what do we do?” she asked. But she is hopeful it will work out. “It is my hope and my desire that I am able to manage, but at this point I can’t say,” she said. . “Why do it at the holidays of all times?” . “That’s the part that gets me.”

    Food-stamp cuts driving people to local food banks - People who depend on food stamps are beginning to feel the pain. Members of Congress have been fighting over a new farm bill. The delay in passage means a temporary food-stamp benefit passed four years ago has now expired. Loaves and Fishes is one of hundreds of pantries in Los Angeles County struggling to feed families and people in need. Pantry Director Barbara Ausburn fears billions of dollars in cuts from the federal food stamp program will leaving many more people looking to them for help. Folks at the food pantry say they've got so many more new families coming in that even though they restocked shelves with plenty of food two weeks ago, they are nearly empty. The pantry gets crates of food from the Los Angeles Regional Food Bank once a month. Officials at the Food Bank say while they are barely able to help the 650 food pantries they service throughout the county, cuts in the federal food stamp program will leave more of the 770,000 people who get food-stamp benefits in the county looking to pantries for extra help -- help that may not be there. "I've had to turn down -- which I hate to have to do -- but we have to turn down clients that come in that are new because we feel that we need to take care of all our other clients first," said Ausburn.

    1 in 3 Philadelphians' Food Stamps Cut - The scene at the Community Food Center in North Philadelphia last week was straight out of a Depression-era photograph. Dozens of people, including many seniors, lined up outside the food pantry to gather canned fruits, vegetables and pasta to keep from going hungry. Elena Carballo, a 65-year-old retiree, said she was forced to go to the pantry because her food stamp benefits were cut Friday. "I work all my life," she said. "Now I have to come to a food line. It's like begging for food." She is one of 47 million Americans whose food stamp benefits were reduced by about 5 percent because a recession-fueled increase in the federal program expired Nov. 1. A divided Congress did not extend it. In Philadelphia, Carballo's plight was starkly common: Nearly 480,000 residents, or one in three, rely on the Supplemental Nutrition Assistance Program. In the U.S., an average of one in seven people use the program. SNAP benefits for all recipients, including children and the elderly, shrunk. Carballo and her disabled son get by on a pension payment of $700 a month, which is far below the poverty line. She said the loss of $20 in monthly SNAP benefits will make it even harder to pay the bills.

    Poverty in America Is Mainstream - Few topics in American society have more myths and stereotypes surrounding them than poverty, misconceptions that distort both our politics and our domestic policy making. They include the notion that poverty affects a relatively small number of Americans, that the poor are impoverished for years at a time, that most of those in poverty live in inner cities, that too much welfare assistance is provided and that poverty is ultimately a result of not working hard enough. Although pervasive, each assumption is flat-out wrong. Contrary to popular belief, the percentage of the population that directly encounters poverty is exceedingly high. My research indicates that nearly 40 percent of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line during that period ($23,492 for a family of four), and 54 percent will spend a year in poverty or near poverty (below 150 percent of the poverty line). Even more astounding, if we add in related conditions like welfare use, near-poverty and unemployment, four out of five Americans will encounter one or more of these events. In addition, half of all American children will at some point during their childhood reside in a household that uses food stamps for a period of time. Put simply, poverty is a mainstream event experienced by a majority of Americans. For most of us, the question is not whether we will experience poverty, but when.

    Alternative Poverty Rate Stuck at 16% - America’s poverty rate showed little change in 2012 from the year before, according to a supplemental measure compiled by the Census Bureau. In September, Census reported the nation’s official poverty rate, which stood unchanged at 15% of the population in 2012—well above the 12.5% level in 2007, before the recession. Some 46.5 million Americans were below the official poverty line of $23,492 for a family of four. On Wednesday, Census reported a more comprehensive measure — one designed to account for anti-poverty programs, regional differences in housing costs and necessary out-of-pocket medical expenses — that showed that 49.7 million people were “poor,” an increase of about 3 million from the official measure. The supplemental poverty rate was 16% in 2012, not significantly different from 16.1% in 2011. Economists across the political spectrum have long criticized the nation’s official poverty figures, which were developed in the 1960s and don’t account for things like government anti-poverty efforts and regional differences. Unemployment insurance is included in the official numbers, but not food stamps — which have been growing rapidly — and the Earned Income Tax Credit. Official figures also exclude necessary out-of-pocket medical expenses that tend to weigh on the elderly. In response, Census launched this supplemental measure in 2011—one that tends to increase poverty rates among seniors and immigrants, and reduce it among children and people in rural areas.

    Plutocrats vs. Populists - Here's the puzzle of America today: the plutocrats have never been richer, and their economic power continues to grow, but the populists, the wilder the better, are taking over. The rise of the political extremes is most evident, of course, in the domination of the Republican Party by the Tea Party and in the astonishing ability of this small group to shut down the American government. But the centrists are losing out in more genteel political battles on the left, too — that is the story of Bill de Blasio’s dark-horse surge to the mayoralty in New York, and of the Democratic president’s inability to push through his choice to run the Federal Reserve, Lawrence H. Summers. All of these are triumphs of populists over plutocrats: Mr. de Blasio is winning because he is offering New Yorkers a chance to reject the plutocratic politics of Michael R. Bloomberg. The left wing of the Democratic Party opposed the appointment of Mr. Summers as part of a wider backlash against the so-called Rubin Democrats ... and their sympathy for Wall Street. Even the Tea Party, which in its initial phase was to some extent the creation of plutocrats like Charles and David Koch, has slipped the leash of its very conservative backers and alienated more centrist corporate bosses and organizations.

    Record US Income Inequality In One Chart - It is well-known that US wealth inequality is now at record spreads, thanks to five (and counting) years of Fed-mediated wealth transfer from the poor and middle class to the superrich (while placating the lower social strata with distracting welfare trinkets and EBT). Perhaps nowhere is this more evident than in the following chart courtesy of just released data by the Social Security administration showing the net compensation breakdown by income bucket for America's 153.6 million workers.  As an aside, in 2012 the average wage was $42,498.21, while the median one was far lower, ot $27,519.10.  But that is a broad average. Narrowing the data down, is what we have done in the chart below which shows that in 2012, the poorest 23.3 million working Americans, who earned between $0.01 and $4,999.99 at  an average net comp of $2,024.79, earned a total of $47.2 billion. And on the other end, we looked at the richest 2,915 Americans who earned $10 million or over in the past year, an average of $22 million per worker, and cumulatively, some $64.3 billion. In brief: in the past year, the poorest 23.3 million Americans earned 36% less than the richest 2,915 Americans (and less than twice more than the richest 166). Needless to say, this excludes wealth from capital and asset appreciation, usually a benefit reserved exclusively for the latter; it also excludes the amount of taxes paid by either of these two income extremes.

    The Rich – ”A Class of People for Whom Humans are Disposable” - Gauis Publius:  I want to give you a picture of our rulers, our betters. You may think of them as far-seeing modernists (Eric Schmidt, stand up please) or vaguely boorish (Mr. Trump? Mr. Adelson?). But even the lowest of your visions of them would, in the main, be generous.Their depravity and psychopathology is worse than your worst imaginings. The writer Chris Hedges was raised among the rich, though he was not one of them. In a piece that presses for popular resistance, “Let’s Get This Class War Started,” he starts with this observation and story. I think this is required reading.  Hedges writes The rich are different. The cocoon of wealth and privilege permits the rich to turn those around them into compliant workers, hangers-on, servants, flatterers and sycophants. Wealth breeds, as Fitzgerald illustrated in “The Great Gatsby” and his short story “The Rich Boy,” a class of people for whom human beings are disposable commodities. Colleagues, associates, employees, kitchen staff, servants, gardeners, tutors, personal trainers, even friends and family, bend to the whims of the wealthy or disappear. Once oligarchs achieve unchecked economic and political power, as they have in the United States, the citizens too become disposable. Hedges sums up the consequences of our failure to imagine: The inability to grasp the pathology of our oligarchic rulers is one of our gravest faults. We have been blinded to the depravity of our ruling elite by the relentless propaganda of public relations firms that work on behalf of corporations and the rich. Compliant politicians, clueless entertainers and our vapid, corporate-funded popular culture, which holds up the rich as leaders to emulate and assures us that through diligence and hard work we can join them, keep us from seeing the truth.

    The Grabbing Hand of the Law - Consider the plight of Terry Dehko and his daughter Sandy Thomas. They run a small grocery store in Fraser, Michigan. Because their insurance only covers a cash limit of $10,000, they frequently make smaller deposits. One day last January, the government seized $35,000 of their assets, not in the store, but in the store account.  Officials said Dehkos had violated federal money-laundering rules, which forbid people to “structure” their bank deposits so as to avoid the $10,000 threshold that triggers banks to report a transaction to the Internal Revenue Service (IRS). There was no evidence of guilt. Dehko was not charged with any crimes, and the IRS supported Dehko's claim. Nonetheless, Dehko is offered 20% of the amount taken from him. In criminal cases, the government can confiscate assets only after a conviction. Under “civil forfeiture”, however, it can grab first and ask questions later. Property can be seized merely on the suspicion that it has been involved in a crime. Citizens have no right to a swift hearing. For a small business, that can be fatal. In many civil-forfeiture cases the agencies that seize the assets keep most of the proceeds, and can use them to pad their budgets or buy faster patrol cars. It is hard to know how common this is, but the Institute for Justice (a libertarian law firm that is representing the Dehkos) notes that the federal government shared $450m of seized assets with state and local authorities in 2012.

    Reducing the Federal Prison Population - The number of Americans in federal prison has risen more than eight-fold in the last three decades, from 25,000 in 1980 to 213,000 today. While it seems plausible that some the increase has been useful and justified as part of an effort to reduce crime, it also seems plausible that the increase has probably gone too far. Julie Samuels et al of the Urban Institute lay out this view in "Stemming the Tide: Strategies to Reduce the Growth and Cut the Cost of the Federal Prison System."  Basically, their plan is to reduce prison time for nonviolent drug offenses. What factors are driving the higher federal prison populations? "The short explanation for the rapid prison population growth is that more people are sentenced to prison and for longer terms. In fiscal year (FY) 2011, more than 90 percent of convicted federal offenders were sentenced to prison, while about 10 percent got probation. By comparison, in 1986, only 50 percent received a prison sentence, over 37 percent received probation, and most of the remainder received a fine. Though the number of inmates sentenced for immigration crimes has also risen, long drug sentences are the main driver of the population’s unsustainable growth. In 2011, drug trafficking sentences averaged 74 months, though they have been falling since 2008. Mandatory minimums have kept even nonviolent drug offenders behind bars for a long time. The average federal prison sentence in 2011 was 52 months, generally higher than prison sentences at the state level for similar crime types. This difference is magnified by the fact that, at the federal level, all offenders must serve at least 87 percent of their sentences, while, at the state level, most serve a lower percentage and nonviolent offenders often serve less than 50 percent of their time. ... Before the Sentencing Reform Act of 1984 and mandatory minimums for drug offenses, a quarter of all federal drug offenders were fined or sentenced to probation, not prison. Today 95 percent are sentenced to a term of imprisonment. The average time served before 1984 was 38.5 months, almost half of what it is now.

    Ten States Have Banned Cities And Counties From Passing Paid Sick Days -- Ten states — Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, North Carolina, Tennessee, and Wisconsin — have passed preemption laws that ban all cities and counties from enacting paid sick days bills, according to an analysis from the Economic Policy Institute.  As can be seen from the chart, momentum has picked up recently, with seven of those laws passed this year alone. They have also been introduced in at least 14 state legislatures, and Pennsylvania is currently considering one that was introduced in October.. As the report notes, “In each of the ten states, the bills’ sponsors included members of the American Legislative Exchange Council (ALEC). And in each case, the bills were adopted following vigorous advocacy by corporate lobbies such as the Chamber of Commerce, National Federation of Independent Business, and Restaurant Association.”  Yet even though these business opponents claim that paid sick days would create unbearable costs, the evidence from those places that do have paid sick leave shows that they can be beneficial. Business growth and job growth have been strong under Seattle’s law. Job growth has also been strong in San Francisco and its law enjoys strong business support. The policies in Washington, DC and Connecticut have come at little cost for businesses. In fact, expanding DC’s current law would net employers $2 million in savings even with potential costs factored in.

    Map: Share of State Tax Revenues from Corporate Income Tax -- Corporate income taxes are one of the smallest sources of state government tax revenue, as indicated by data from the U.S. Census Bureau. On average, only 5.4 percent of state tax revenues came from corporate income taxes in 2011 (the most recent data available). [Please note that this map discusses state tax revenues only, not state and local tax revenues together, as is outlined in our Facts and Figures booklet.]

    Texas school tosses 6th grader’s breakfast in trash after he can’t pay 30 cents - A Texas school is standing by its policy after cafeteria workers threw a sixth grader’s breakfast in the trash when they realized his account was short 30 cents. Jennifer Castilleja told KTRK that she offered to come to the school Wednesday morning and pay for the breakfast but Barber Middle School in Dickinson ISD refused to feed her 12-year-old unless it got the money first. As a part of the reduced meal program, Castilleja’s son pays only 30 cents for each breakfast, but his account had run out of money.“My son called me and asked me if I could bring him some money because they took his breakfast from him and he needed money for breakfast,” she recalled. “I said, ‘Well, I’m on my way, I’ll pay for it,’” Castilleja told the school. “And she said no, I would have to bring some money before he could have breakfast.” “There were kids all around him. I think he may have been a little embarrassed and upset and, of course, hungry.” Dickinson ISD explained to KTRK that Castilleja should have known her son’s account was running low.

    In Public Education, Edge Still Goes to Rich - NYTimes - “There aren’t many things that are more important to that idea of economic mobility — the idea that you can make it if you try — than a good education,” President Obama told students.  It is hardly a partisan belief. About a decade ago, on signing the No Child Left Behind Act, President George W. Bush argued that the nation’s biggest challenge was to ensure that “every single child, regardless of where they live, how they’re raised, the income level of their family, every child receive a first-class education in America.” This consensus is comforting. It provides a solution everyone can believe in, whether the problem is income inequality, racial marginalization or the stagnation of the middle class. But it raises a perplexing question, too. If education is a poor child’s best shot at rising up the ladder of prosperity, why do public resources devoted to education lean so decisively in favor of the better off?  The anguished and often angry national debate over how to improve American educational standards, focused intently on grading students and teachers, mostly bypasses how the inequity of resources — starting at the youngest — inevitably affects the outcome.  “The debate about education reform is a lot about process,” said David Sciarra, executive director of the Education Law Center. “To a large extent it is a huge distraction. We never get to the question of what resources we need to get the students to meet the standards.”

    A Tax Subsidy for Richer Schools -- My Economic Scene column on Wednesday about the inequity of school funding pointed out that the main reason schools in poor neighborhoods have less money than schools in rich neighborhoods is that they are mostly funded by local property taxes.  The federal government, I argued, partly redresses the lopsided local funding. But it provides too little money to move the dial very much. The annual appropriation for the Department of Education has in recent years included only $24 billion or so for K-12 education. That’s just a smidgen of the $600 billion spent, roughly, in public schools across the country.  But a reader pointed out something I failed to consider: the loophole that allows homeowners to deduct their local property taxes from their federal taxes. This amounts to a big federal subsidy that benefits schools in affluent neighborhoods way more than it helps poor schools. This year, the federal deduction of property taxes will be worth $27 billion, according to the Joint Committee on Taxation – more than the federal government’s entire K-12 budget.

    Top 16 NYC charter school executives earn more than Chancellor Dennis Walcott -  Big paychecks are called 'outrageous' as New York City charter schools claim their students would face cuts if the schools are charged rent under a new mayor. As charter schools cry poverty over the threat a new mayor might charge them rent, their bigwigs raked in the big bucks — with at least 16 earning more than the city schools chancellor. The outsize paychecks have even ballooned, with the top three execs chalking up raises of at least $99,000 in four years’ time. While Chancellor Dennis Walcott earns $212,614 for overseeing more than 1,600 public schools, Village Academies Network CEO Deborah Kenny, who founded just two schools, scored $499,146 — tax returns for the 2011-12 school year show. David Levin of KIPP NY, who earns $395,350; and Eva Moskowitz, who reported earning $475,244 on the Success Academy Charter Schools’ tax forms, all draw bigger paychecks than Chancellor Dennis Walcott. “Charter schools should be able to pay rent if they can pay outrageous, almost blasphemous, amounts of money,” said Community Education Council 14 president Tesa Wilson. Charter school boards defend the top salaries in part by noting they’re not relying on the public dime to attract their talent, while at the same time arguing they’re public schools that deserve public space.

    New Student Loan Rules Add Protections for Borrowers -  If you are a former student having trouble paying back college debt, you may be relieved to hear that the Education Department has created new rules that will bolster borrower protections for federal education loans. The new regulations will make it easier for distressed borrowers to get out of default and repay their loans, said Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, which supported the changes. More than 600,000 federal student loan borrowers who began repaying their debts in 2010 defaulted on their loans by 2012, according to federal data. Almost half — 46 percent — attended for-profit colleges, which also had higher average default rates than other schools. For-profit schools had an average default rate of almost 22 percent, compared with about 15 percent for borrowers across all colleges. Under federal law, those who are in default on federal student loans may “rehabilitate” them by making nine on-time payments in amounts that are “reasonable and affordable.” Rehabilitation lets the borrower get out of default and become eligible for further federal student aid.  In its final rules, the Education Department requires that borrowers who want to rehabilitate loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option, meant to help borrowers who have high debt in relation to income, caps a borrower’s monthly payments at 15 percent of his or her monthly income.

    Student Debt is Crushing the Economic Future of the Young -- If a bad job market wasn’t damaging enough, the cost of paying off student loans does much more harm to the long-term prospects of young people than is commonly realized. Bill H at Angry Bear has been having a long-running argument over a dubious effort by the CBO to cook the books yet again (we’ve covered past efforts: for a partial list, see here here, here, and here). He’s been criticizing the CBO (correctly) for changing its valuation method for student loans to something called Fair Market Valuation.  But perversely, the “Fair Market Valuation” method anticipates that loans going into default result in losses. That’s awfully convenient, since it justifies charging higher interest rates. As Bill H argues by e-mail: "There is no history of government-backed student loans being risky and the cost is $.94 on each dolar loaned. A student loan is 99% inescapable.” He continues that discussion in a current post, Ripping Off College Students’ Economic Future, and there is an additional part of his analysis that seldom gets much public attention, which namely is the lifetime cost of student loans. It’s much higher than you’d think, since the need to retire the debt means that young people start saving later, which means they buy house later (if ever) and accumulate less in the way of retirement assets. But the amount lost isn’t just the borrowings plus the interest payments. By not having savings early in their working life, they miss the effect of having them compound those extra years. That has a much bigger effect than you’d imagine. I’ll start with his conclusion:Are students being ripped off by government entitlement programs? Yes they are being ripped off; but, not by Social Security or Medicare as Stanley Druckenmiller suggests. Nor are student loans costing the federal government and tax payers as much as the recent analysis of student loans done by the CBO’s Douglas Elmendorf. In reality, the risk to the government and taxpayers comes from these students being less successful in accumulating wealth and increasing income which as DEMOS has suggested would cost $4 trillion is wealth alone. Unburdening students from a lifetime of student loan debt would benefit the economy.  Yes, folks, $4 trillion. Let’s look at how he gets there:

    Illinois leads states in widening pension-funding ratios -- U.S. states, led by Illinois, have lost ground for five straight years in socking away enough assets to pay retired workers. Illinois was the most populous of five states where pension- funding ratios fell at least 21 percentage points from 2007 to 2012, data compiled by Bloomberg show. The other states are Kentucky, North Dakota, Oregon and Vermont. The nationwide median ratio of 69 percent is down from almost 83 percent in 2007, according to the data. The longest recession since the 1930s devastated portfolios and pushed some officials to forgo pension allocations as tax revenue sank. Even with investment returns rebounding, many states haven't funded enough to fill the gap. In some cases, proposals to cut payouts by reducing benefits have stalled. "A lot of states are not making their full contributions," John Carlson, vice president in the Federal Reserve Bank of Cleveland's research department, said in an interview. "When they're underfunded, they're supposed to make additional contributions to close the gap." For states and municipalities nationwide, the swelling obligations are leaving officials with the quandary of where to allocate tax dollars — to services such as education or toward retiree benefits. In Illinois, which has $5.3 billion in unpaid bills, Gov. Pat Quinn, D, has likened the pension expense to a python strangling state finances.

    Is Congress helping Wall Street loot your pension? - — Democrats and Republicans seem to be falling over each other trying to prove who can best help Wall Street loot the Treasury and the pensions of the American worker. This week, the House passed two bills with bipartisan support that would benefit the financial services industry and hurt almost everyone else. Both bills are pure giveaways worth billions of dollars. One of the bills would roll back some of the protections put in place by the Dodd-Frank Act to keep the banks from gambling with their insured deposits on very profitable but risky derivatives known as swaps. Once it’s fully implemented, Dodd-Frank would force the banks to put most of their risky trades outside the bank into a separately capitalized subsidiary, where losses would not be guaranteed by the Federal Deposit Insurance Corp. Nor would these affiliates have access to cheap money from the Federal Reserve. Letting the banks use insured deposits to fund these swaps lowers the banks’ costs now, and it puts the financial system at risk by giving the impression that the FDIC (and ultimately the Treasury) could protect creditors if the trades go sour, as they often do. Beneficiaries of the bill would include Citigroup,  J.P. Morgan and Bank of America.

    How to Sound Insane by Talking Like a Bi Partisan Expert on Social Security - Try to imagine you have to buy a medicine that will save your life. You need 100 pills, and the doctor firmly said, “Finish the Medicine…  if you stop too soon the infection will come back worse and you will die.” So you go to the pharmacy and the pharmacist tells you the price of the medicine has gone up and your insurance will only pay for 98 pills.   You say, “Okay, I’ll pay for the last two pills myself.” But the pharmacist tells you,  “I can’t let you do that.  I can only give you the number of pills your insurance will pay for.” This is what the “debate” about Social Security amounts to:   You are going to need Social Security when you get old.  The cost is going to go up by then about two percent.   Washington has decided they can’t let you pay the extra cost. The only solution they are willing to consider is cutting the amount you will get… to less than it will take to keep you alive. Those who would say, “Well, let them cut Social Security, and I will just pay for the difference out of my own pocket,” are missing the point that Social Security is insurance that will… if it isn’t cut…  provide you with “enough” to live on even if “your own pocket” doesn’t have enough in it to “make up the difference.” The “debate”…  there is no debate, it’s all about telling lies to the people until they accept those cuts as inevitable…  the debate is based on a number of lies, repeated by people who don’t know what they are talking about. 

    Social Security Paid Out 0.006 Percent of Benefits to Dead People - Dean Baker - That’s what the headline of the front page Washington Post story might have read if the purpose was to inform readers. Instead the lengthy piece (which covers the whole back page) told readers that Social Security paid out $133 million in benefits to people who were dead over the last three years.  While it is useful to weed out such improper payments, this piece likely led many readers to wrongly conclude that such payments are a major cost to the program. They are not. Nothing about the finances of Social Security would be noticeably changed if the amount of such improper payments were immediately reduced to zero. If the Washington Post followed the NYT’s commitment to putting big numbers in context, it would have expressed $133 million as a share of the $2102 billion paid out in benefits over the relevant time frame. That way readers would realize that these mistakes have little impact on the program’s financial condition.

    Social Security’s Job - Does Social Security need to be fixed? As Democrats and Republicans grapple over how to reduce the government’s budget deficit in the face of rising costs for pensions and health care, whether Social Security should be touched remains one of the most controversial topics in American budgetary politics. But something big is missing to the debate over the finances of what is still the largest component of the social safety net: an understanding of how well it does its job. When you peek under the hood, it doesn’t always look so great. Indeed, this supposedly great redistributive program — which uses a broad tax on all workers to protect the elderly from poverty — exhibits some fairly stark regressive features. One well-known regressive feature comes from the rule that benefits must be annuitized, paid out over time in monthly installments rather than as a lump sum. This means that richer people who tend to live longer will get a bigger benefit than poorer people with shorter life spans. Survivor benefits redistribute money from the singles — who don’t get the benefit — to the married, who do. Eugene Steuerle, Karen Smith and Caleb Quakenbush of the Urban Institute in Washington just discovered another unsuspected regressive feature. . Considering its transfers across the generations, Social Security redistributes money from minorities — blacks, Hispanics and others — to usually wealthier whites. For every $100 paid into the system, white beneficiaries receive $113 in benefits, blacks receive $89 and Hispanics receive $58. This feature will become more pronounced over time. Over the next 10 years, whites will get $120 for each $100 they put in — on average. Blacks will get $91 and Hispanics $62. The reason is straightforward: The black and Hispanic populations are generally younger. For every elderly pensioner drawing Social Security, there are more workers contributing payroll taxes.

    Expand Social Security -- According to the Pew Research Center, the median household wealth for those aged 65+ is about $170,000. While that sounds like a significant amount of money, as Dean Baker of the Center for Economic and Policy Research pointed out, this is actually a trivial amount of wealth for people with little or no income other than Social Security benefits. Remember that this figure includes housing wealth. Even if it was a bunch of cash in a bank account, it wouldn't actually provide for a significant supplement to other retirement income, but the reality is that many people have a house and not much else. The point is that people with this vast wealth of $170,000, mostly tied up in the house in which they live, face bleak retirement years. As politicians in both parties discuss cutting promised Social Security retirement benefits as a misguided tribute to the austerity gods, the reality is that we desperately need to increase these benefits right now. Some people who have objected to my proposal for increasing Social Security retirement benefits have done so on the basis that this is something people should be personally responsible for. Essentially, life's a big test, and one element of that test is a lifelong commitment to amassing significant personal wealth that can be drawn down in your twilight years. If you fail, well, better luck next time. Except ...

    Liberal push to expand Social Security gains steam -  Senator Sherrod Brown is joining the push to expand Social Security, and he’s making a startling argument: Dems should go on offense on entitlements, rather than let Republicans and Beltway fiscal scolds frame the discussion as one over how much benefits should be cut, not one over whether they should be cut at all. “There are two fundamental numbers that make this a moral case for Democrats to make,” Brown told me in an interview today. “One is that a third of seniors rely on Social Security for virtually their entire income. The other is that more than half of seniors rely on Social Security for significantly more than half their income.” Brown is endorsing Tom Harkin’s bill to expand Social Security benefits, which would boost benefits for beneficiaries by $70 per month, change the cost-of-living calculation to keep pace with rising costs of things seniors need, and scrap the payroll tax cap to strengthen the program over the long term. The crusade to expand Social Security got started with liberal bloggers such as Atrios began pushing for it, and gained some momentum when liberal groups such as the Progressive Change Campaign Committee began mobilizing behind the idea.

    Small Businesses Plan to Add Health Coverage For First Time in a Decade -- Sean Vitka directs my attention to page 26 of a new survey from NFIB, the National Federation of Independent Business. They asked their members if they planned to add health insurance next year, and it turns out that there's going to be a net increase. Of those who currently offer insurance, 7 percent plan to drop it. Of those who don't currently offer insurance, 13 percent plan to add it. That's good news, and the report notes that "If small employers follow those plans, the net proportion of them offering would rise, breaking a decade-old trend."

    Under Health Act, Millions Eligible for Free Policies - Millions of people could qualify for federal subsidies that will pay the entire monthly cost of some health care plans being offered in the online marketplaces set up under President Obama’s health care law, a surprising figure that has not garnered much attention, in part because the zero-premium plans come with serious trade-offs. Contribute to Our Reporting Three independent estimates by Wall Street analysts and a consulting firm say up to seven million people could qualify for the plans, but federal officials and insurers are reluctant to push them too hard because they are concerned about encouraging people to sign up for something that might ultimately not fit their needs. The bulk of these plans are so-called bronze policies, the least expensive available. They require people to pay the most in out-of-pocket costs, for doctor visits and other benefits like hospital stays. Supporters of the Affordable Care Act say that the availability of free-premium plans — as well as inexpensive policies that cover more — shows that it is achieving its goal of making health insurance widely available. A large number of those who qualify have incomes that fall just above the threshold for Medicaid, the government program for the poor, according to an analysis by the consulting firm McKinsey and Company.

    Obamacare Birth Control Mandate Ruled Unconstitutional -  A requirement of President Barack Obama’s health-care law that group insurance plans cover contraceptives may violate religious freedom, a U.S. appeals court said, widening a split among the circuits and making it more probable the U.S. Supreme Court will take up the issue.  A three-judge panel in Washington said a lower court was wrong to deny an injunction sought in a lawsuit by two brothers who are Catholic. The men sued on religious grounds, seeking to exclude contraceptive coverage from health plans provided by their produce-distribution companies. While the panel didn’t rule on the actual challenge, they disagreed with the trial judge’s determination that the suit was unlikely to succeed. How political fear was pitted against technical needs - In May 2010, two months after the Affordable Care Act squeaked through Congress, President Obama’s top economic aides were getting worried. Larry Summers, director of the White House’s National Economic Council, and Peter Orzag, head of the Office of Management and Budget, had just received a pointed four-page memo from a trusted outside health adviser. It warned that no one in the administration was “up to the task” of overseeing the construction of an insurance exchange and other intricacies of translating the 2,000-page statute into reality. Summers, Orzag and their staffs agreed. For weeks that spring, a tug of war played out inside the White House, according to five people familiar with the episode. On one side, members of the economic team and Obama health-care adviser Zeke Emanuel lobbied for the president to appoint an outside health reform “czar” with expertise in business, insurance and technology. On the other, the president’s top health aides — who had shepherded the legislation through its tortuous path on Capitol Hill and knew its every detail — argued that they could handle the job. In the end, the economic team never had a chance: The president had already made up his mind, according to a White House official who spoke on the condition of anonymity in order to be candid. Obama wanted his health policy team — led by Nancy-Ann De­Parle, director of the White House Office of Health Reform — to be in charge of the law’s arduous implementation. Since the day the bill became law, the official said, the president believed that “if you were to design a person in the lab to implement health care, it would be Nancy-Ann.” Three and a half years later, such insularity — in that decision and others that would follow — has emerged as a central factor in the disastrous rollout of the new federal health insurance marketplace, casting doubt on the administration’s capacity to carry out such a complex undertaking.

    Curious Statement in Obamacare Website Source Code: "You Have No Reasonable Expectation of Privacy" - Right in the source code for the Obamacare website is the statement "You have no reasonable expectation of privacy regarding any communication of data transiting or stored on this information system". It curious why this message would be placed in the source code where no one would have any expectation of ever seeing it. In the video below (which came out last week's Congressional testimony) Rep. Joe Barton (R-Texas), a member of the House Energy and Commerce Committee, grilled Cheryl Campbell, senior vice president of CGI Federal Inc., the company that built the Obamacare health care exchange website, on the hidden language and on HIPAA compliance.   Campbell testified that the system is HIPAA Compliant. "The HIPAA Privacy Rule addresses the saving, accessing and sharing of medical and personal information of any individual, while the HIPAA Security Rule more specifically outlines national security standards to protect health data created, received, maintained or transmitted electronically, also known as electronic protected health information."In repeated questioning, Barton got Campbell to admit she knew that the "no reasonable expectation of privacy" line was in the code.

    Senate Democrats to White House: Fix Obamacare -  Democratic senators have a warning for the White House: Fix Obamacare’s problems or put Senate seats at risk next year.  In interviews, Democratic senators running in 2014, party elders and Senate leaders said the Obama administration must rescue the law from its rocky start before it emerges as a bigger political liability next year. Democratic senators from red states — the most vulnerable incumbents up for reelection next year — voted for Obamacare and have been among the law’s biggest champions, believing that voters would embrace it once they experienced its benefits. They could end up being some of the law’s most prominent casualties if its unpopularity continues to grow.If voters continue experiencing problems like a balky website, canceled policies and higher premiums, the fallout could be brutal next November, Democrats acknowledge.

    Obamacare Bogus Numbers: Why Results Touted in West Virginia as Sign of Success Are Either Wrong or a Proof of Failure - Yves Smith - Michael Olenick unearthed an anomaly that is so extreme that it raises doubts about the numbers that the Department of Health and Human Services is reporting for Obamacare signups and enrollments to date. He writes: Following up about the rightfully maligned website, and the software which underlies it, I can verify the program appears significantly sicker than anybody admits. As a Florida resident using the Federal exchange, I was never able to view plans despite working feverishly at it for over a month. I finally reached a worker at who told me the site simply doesn’t work. She heard that state exchanges were better but verified that she has never personally seen anyone from Florida able to move past the last screen to view or purchase plans.  Yet the Department of Health and Human Services boasts by Kathleen Sebelius, What’s Working in the Marketplace: The Data Services Hub,  proclaims: "The Social Security Administration has reported 4.2 million transactions involving individuals or households who have elected to establish an account… The highest numbers of transactions continues to involve individuals and households in the following states: Pennsylvania (323,000), New York (310,000), California (290,000), West Virginia (240,000), and Washington (135,000)." Yves here. This extract from Sebelius is a remarkable confection of disinformation.  Let’s start with a basic issue: What exactly is a transaction? Normally, you’d assume that means signing up for insurance. My trusty desktop dictionary defines a transaction as “an instance of buying or selling something; a business deal.” But here in a typical Obama Orwellianism, that’s redefined to something, but we’re not sure exactly what, that prospective insurance customers do after the’ve managed to set up an account. So it’s clear they aren’t even within hailing distance of the conventional use of “transaction” which would be a completed enrollment (or in Obamacare speak, a clean, unique 834 transaction). We know those numbers are tiny for the Federal exchanges, hence the desperate effort to point at anything that looks like progress, particularly if you can attach big impressive-sounding numbers to it.

    "Very Low" Obamacare Enrollment Admitted As Young People Just Say No - For the first time today, in addition to previous anecdotal evidence that the first several days of the Obamacare rollout (with 248 enrollees in the first two days) have been an abysmal failure, and the days since have fared no better, HHS Secretary Sebelius finally admitted to the Senate Finance Committee that over a month after the rollout of, the enrollment figures have been "very low." Of course, being able to qualify the number didn't mean she could or would actually put it in numeric terms - it would have been simply too humiliating and may have forced her to finally do what so far nobody in the Obama administration has done: take responsibility for one after another failure (after all, for everything else, there's "Mr. Chairwoman getting to work") and resign. One thing, however, is certain, the "very low" number whatever it may be, is orders of magnitude below Obama's mission critical goal of enrolling 494,620 people in October, and another 706,600 for November.

    If the GOP Repeals Obamacare, 137 Million Americans Could Get Cancellation Notices - The GOP has gleefully jumped on media reports about Americans having their health insurance plans nixed because of Obamacare. "Obama lied. My health plan died," conservative blogger Michelle Malkin wrote in September, referring to President Barack Obama's promise that people who liked their health insurance plans could keep them. But how many Americans' health plans would receive some form of cancelation notice if GOP hard-liners got their wish and repealed Obamacare? Probably at least 137 million. Let's do the math. Most of the 49 million Americans who were uninsured before the Affordable Care Act will now be eligible to obtain health coverage—either through the expansion of Medicaid or through federal subsidies they can use to purchase insurance on the cheap through the exchanges. From that number, subtract the 30 million or so low-income people who will not sign up for coverage, either because they can't afford it, or they live in one of the 24 states where Republican governors decided not to expand Medicaid. That takes us down to 19 million uninsured Americans whose coverage would disappear if Republicans repeal Obamacare. Now add to that number the 267 million Americans who have insurance, but will now receive better coverage through the Affordable Care Act (ACA).

    Obamacare Increases Premiums by 41 Percent - Forty-one states, plus D.C., will experience premium hikes under Obamacare.In the average state, Obamacare will increase underlying premiums by 41 percent. The steepest increases will be felt by those who are young, healthy, and male. Premiums rise because people are forced to buy products they do not want (men have to buy plans with maternity care, singles have to buy plans with pediatric vision care).Premium hikes will reduce people's buying power, and slow economic growth in some sectors.Obamacare’s supporters argue the rate increases are not important since many will receive federal subsidies. But, subsidies are not free—taxpayers foot the bill. See more detailed data on how your state will be affected here.

    Sticker shock often follows insurance cancellation - Dean Griffin liked the health insurance he purchased for himself and his wife three years ago and thought he'd be able to keep the plan even after the federal Affordable Care Act took effect. But the 64-year-old recently received a letter notifying him the plan was being canceled because it didn't cover certain benefits required under the law. The Griffins, who live near Philadelphia on the Delaware border, pay $770 monthly for their soon-to-be-terminated health care plan with a $2,500 deductible. The cheapest plan they found on their state insurance exchange was a so-called bronze plan charging a $1,275 monthly premium with deductibles totaling $12,700. It covers only providers in Pennsylvania, so the couple wouldn't be able to see the doctors in Delaware whom they've used for more than a decade. "We're buying insurance that we will never use and can't possibly ever benefit from. We're basically passing on a benefit to other people who are not otherwise able to buy basic insurance," The Griffins are among millions of people nationwide who buy individual insurance policies and are receiving notices that those policies are being discontinued because they don't meet the higher benefit requirements of the new law.

    Exclusive: Obama personally apologizes for Americans losing health coverage -- President Obama said Thursday that he is "sorry" that some Americans are losing their current health insurance plans as a result of the Affordable Care Act, despite his promise that no one would have to give up a health plan they liked. "I am sorry that they are finding themselves in this situation based on assurances they got from me," he told NBC News in an exclusive interview at the White House. "We've got to work hard to make sure that they know we hear them and we are going to do everything we can to deal with folks who find themselves in a tough position as a consequence of this." In a wide-ranging interview with NBC's Chuck Todd, President Obama discusses implementation of the Affordable Care Act, rollout of the healthcare website, NSA spying, Iran and keeping Joe Biden as his running mate. Obama’s comments come 10 days after NBC News’ Lisa Myers reported that the administration has known since the summer of 2010 that millions of Americans could lose their insurance under the law. Obama has made repeated assurances that “if you like your health plan, you will be able to keep your health plan” with Obamacare.

    Cream-Skimming , Health Insurance, Second-Mover Advantage - From Bloomberg: UnitedHealth will “watch and see” how the exchanges evolve and expects the first enrollees will have “a pent-up appetite” for medical care, Hemsley said. “We are approaching them with some degree of caution because of that.” An interpretation from Think ProgressGet that? The company packed its bags and dumped its beneficiaries because it wants its competitors to swallow the first wave of sicker enrollees only to re-enter the market later and profit from the healthy people who still haven’t signed up for coverage.

    Anthem Blue Cross is sued over policy cancellations - In a new line of attack on canceled health policies, two California residents are suing insurance giant Anthem Blue Cross, alleging they were misled into giving up their previous coverage. About 900,000 Californians and many more nationwide have received cancellation notices on their individual health insurance policies, triggering a public uproar against the rollout of President Obama's healthcare law. Some consumers have complained about hefty rate hikes from the forced upgrades because their current plans don't meet all the requirements of the Affordable Care Act. Much of the consumer anger has been directed at Obama's repeated pledge that Americans could keep their existing health insurance if they liked it despite the massive overhaul. In separate lawsuits filed Monday, Paul Simon, 39, of Sherman Oaks and Catherine Coker, 63, of Glendale sought to pin some of the blame on Anthem Blue Cross, a unit of WellPoint Inc. The two plaintiffs are asking the courts to block any policy cancellations unless Anthem customers are allowed to switch back to their previous grandfathered health plans.

    Top U.S. Hospitals Are Opting Out Of Obamacare - In the off chance you are actually able to access the website and successfully sign up for the epic disaster that is Obamacare, you might be a bit surprised about your options when you actually encounter a medical issue. Every American that is even considering signing up for this nightmare needs to be aware of the disturbing fact that many of the top hospitals in the nation will not be accepting Obamacare related insurance plans. Even worse, in many cases it is virtually impossible to find out which doctors and hospitals are on your plan.  One of the most egregious examples of failure is the following: Seattle Children’s Hospital ranks No. 11 on the U.S. News & World Report best pediatric hospital list. When Obamacare rolled out, the hospital found itself with just two out of seven insurance companies on Washington’s exchange. Americans who sign up for Obamacare will be getting a big surprise if they expect to access premium health care that may have been previously covered under their personal policies. Most of the top hospitals will accept insurance from just one or two companies operating under looked at the top 18 hospitals nationwide as ranked by U.S. News and World Report for 2013-2014. We contacted each hospital to determine their contracts and talked to several insurance companies, as well. The result of our investigation: Many top hospitals are simply opting out of Obamacare.

    The hidden marriage penalty in Obamacare - Any married couple that earns more than 400 percent of the federal poverty level—that is $62,040—for a family of two earns too much for subsidies under Obamacare. "If you're over 400 percent of poverty, you're never eligible for premium" support, explains Gary Claxton, director of the Health Care Marketplace Project at the Kaiser Family Foundation. But if that same couple lived together unmarried, they could earn up to $45,960 each—$91,920 total—and still be eligible for subsidies through the exchanges in New York state, where insurance is comparatively expensive and the state exchange was set up in such a way as to not provide lower rates for younger people. (Subsidy eligibility is calculated using a complicated formula involving income in relation to the poverty line, family size, and the price of plans offered through a state's marketplace.)

    Obamacare Will Lead Me to Either Get Divorced or Leave the US - Michael Olenick -  I have to confess to NC readers that my wife and I have been discussing divorce. It’s not that we’re unhappy – I’m blessed with a wonderful relationship to an amazing woman – but marriage is becoming cost prohibitive thanks to the Obamacare marriage penalty. Children do make it more likely to get a larger exemption but one doesn’t do much: people should either ditch their families or make like the religious types that have a dozen.  If I accepted the federal government’s not-so-subtle nudge to abandon my family I’d have to pay child support but an online calculator tells me the monthly cost is less than the real-life cost of healthcare with an Obamacare policy. Given the choice of supporting a child or a health insurance executive I’d prefer the kid. Of course there are noneconomic intangibles that prevent us from ditching our families; even if the federal government has abandoned the US middle class my experience is we haven’t abandoned one another. Obama didn’t quite outright tell us to fuck ourselves but between mandatory policies that cost $800/month, that include deductibles and co-payments which can cost another $1,000/month, these policies are only affordable only for the 1%, and that crowd tends to already have good health insurance.  Somebody at got the attention of CMS and received permission to display the policies for comparison shopping. Once able to compare plans I found that for my family – not some theoretical family but my very real one – there are several 2013-era plans that seem to work well. The lowest costs $276/month; doctors visits cost $40 and the maximum annual out-of-pocket cost is $12,500 per person or $25,000 per family, which is steep but fair for cheap insurance.

    You Also Can’t Keep Your Doctor - Everyone now is clamoring about Affordable Care Act winners and losers. I am one of the losers. My grievance is not political; all my energies are directed to enjoying life and staying alive, and I have no time for politics. For almost seven years I have fought and survived stage-4 gallbladder cancer, with a five-year survival rate of less than 2% after diagnosis. I am a determined fighter and extremely lucky. But this luck may have just run out: My affordable, lifesaving medical insurance policy has been canceled effective Dec. 31. My choice is to get coverage through the government health exchange and lose access to my cancer doctors, or pay much more for insurance outside the exchange (the quotes average 40% to 50% more) for the privilege of starting over with an unfamiliar insurance company and impaired benefits.  Countless hours searching for non-exchange plans have uncovered nothing that compares well with my existing coverage. But the greatest source of frustration is Covered California, the state's Affordable Care Act health-insurance exchange and, by some reports, one of the best such exchanges in the country. After four weeks of researching plans on the website, talking directly to government exchange counselors, insurance companies and medical providers, my insurance broker and I are as confused as ever. Time is running out and we still don't have a clue how to best proceed.

    Obamacare: The Biggest Insurance Scam in History --The Affordable Care Act (ACA), also called "Obamacare," may be the biggest insurance scam in history. The industries that profit from our current health care system wrote the legislation, heavily influenced the regulations and have received waivers exempting them from provisions in the law. This has all been done to protect and enhance their profits. In the meantime, the health care crisis continues. Fewer people, even those with health insurance, can afford the health care they need because of out-of-pocket costs. The ACA continues that trend by pushing skimpy health plans with low coverage and restricted networks. This is what happens in a market-based system of health care. People get only the amount of health care they can afford, rather than what they need. The ACA takes our failed market-based system to a whole new level by forcing the uninsured to purchase private health plans and using the government to sell and subsidize them. Sadly, most Americans are being manipulated into supporting the ACA and do not even know they are being bamboozled. That is how scams work. Even after the con is completed, victims do not know they have been manipulated and ripped off. They may even feel good about being scammed, thinking they made a deal when they really had their bank accounts picked. But it is the insurance companies that are the realizing windfall profits from the Obamacare con even as it falters.

    Obama stumbles over lack of health care candor - Obama stands accused by critics of brashly lying about implications of his signature health care law even as his aides frantically fix a faulty sign-up website that raised questions about the reform's long-term fate. He is in a classic political fix -- on camera delivering a definitive statement which is, or at the least appears, untrue. Dousing Republican attacks over Obamacare, the president repeatedly told Americans, "If you like your plan, you can keep your plan." But when thousands of people started getting notices from private health insurers saying their policies would be cancelled because of new rules under Obamacare, the White House had a huge political problem. It was a reminder that the reality of implementing a massive social reform is more complex than the political bromides often voiced to pass it. So far, Obama's efforts to extricate himself have backfired.

    Obama’s tech expert too busy fixing website to testify (Reuters) - The chief technology officer for the White House is willing to testify to a powerful oversight committee in the U.S. House of Representatives, but Todd Park is still too busy trying to fix the glitch-ridden Obamacare website to appear, the White House said on Thursday. Republican Darrell Issa said he wants to hear from Park and other top Obama administration tech officials next Wednesday about why has performed so poorly, potentially preventing millions of people from enrolling in new online health insurance exchanges. Issa, noting that Park was a "central leader" in the website's development, asked him to reconsider his decision by Friday or potentially face a subpoena compelling him to testify. Park is open to meeting with Issa's staff informally in late November and would testify at a hearing sometime in the first two weeks of December, "Because Mr. Park is currently occupied full time on the critically important work of improving the website for the millions of Americans seeking affordable health insurance options, his testimony needs to be scheduled at a time that is less disruptive to that work," In the Death Spiral We Trust -- In theory, absent government intervention, only sick people will buy health insurance, which means that insurers have to charge a lot for the insurance, which means that healthy customers will not buy insurance. This is the supposed “death spiral” for health insurance markets. The solution to this purported problem is to force everyone – especially the healthy – to buy health insurance. That starts a domino effect of other problems, including the unfortunate side effects of the redistribution, such as discouraging employers from creating and employees from accepting full-time jobs, which authors of the Affordable Care Act found to be necessary in order for everyone to be able to comply with the mandate to buy insurance. I agree with the 2001 Nobel committee, which explained that the adverse selection idea is “a simple but profound and universal idea, with numerous implications and widespread applications.” Still, we don’t really know if the side effects of proposed market interventions are more tolerable than the disease itself.

    Duct Tape PoliticsKunstler - ObamaCare was designed to work like a giant roll of duct tape that would allow the current cast of characters in charge (Democratic Progressives) to pretend that the system could keep going a few years longer. But it looks like it has already blown out the patch on the manifold and is getting ready to throw a rod — which duct tape will not avail to fix.   I had three major surgeries (hip, open heart, spine) the past year and paid attention to the statements that rolled in from my then-insurer, Blue Shield (the policy was cancelled in October). These documents were always advertised as “this is not a bill” and that was technically true, but it deflected attention from what it really was, a record of negotiated scams between the “providers” (doctors and hospitals) and the insurance company.   There was never any discussion (or offer of discussion) of the cost of care before a procedure. When asked, doctors commonly pretend not to know what their work costs. Why is that? It’s not to spare the patient’s feelings. It’s because sick people are hostages and both the doctors and the hospital management know they will agree to anything that will get them through the crisis of illness. This sets up a situation that allows the “providers” to blindside the patient with charges after the fact.   All the surgeries I had required hospital stays. For the hip op, I was in for a day and a half in a non-special bed (no fancy hookups). The charge was $23,000 per day. For what? They took my blood pressure nine times. I got about six bad meals. The line charge on the Blue Shield statement said “room and board.” It would be a joke if this extortion wasn’t multiplied millions of times a day across the nation. Citizen-hostages obviously don’t know where to begin to unravel this skein of dreadful rackets. If you think it’s possible to have a productive conversation with an insurance company rep at the other end of the phone line, then you’re going to be disappointed. You might as well be talking to a third-sub-deputy under-commissar in the Soviet motor vehicle bureau.

    This chart should be getting more attention - There’s a chart from Jonathan Gruber that’s been making the rounds; most recently Ezra Klein featured it as one of “seven reasons Obamacare isn’t facing a death spiral.” It contrasts enrollment during the early months of Massachusetts’ exchange opening in 2007 with the last month of open enrollment—the enrollee population climbs from 123 in the first month to 36,167 by the end (about a year later). But that chart only tells part of the story. It’s not just that we should expect early enrollment to be slower—we should expect it to be slower, older, and sicker. And we shouldn’t expect it to ramp up until the mandate’s just about to kick in, which happens after open enrollment ends on March 31. This is a key takeaway from the Massachusetts experience, studied by Amitabh Chandra, Jonathan Gruber, and Robin McKnight. (Austin covered this way back in January. Of 2011.)This chart depicts new (not cumulative) enrollment by month and health status for the subsidy eligible population between 150 and 300% of the federal poverty line. Here, “chronic illness” is defined as a diagnosis of hypertension, high cholesterol, diabetes, asthma, arthritis, and effective disorder, or gastritis within a year of enrollment. Massachusetts’s mandate became fully operational in December 2007.

    The Primary Care Technician Will See You Now - One obvious way to address the shortage of primary medical care in the U.S. is to train more people who can provide it. Even if this could somehow happen overnight, though, it wouldn’t necessarily solve the problem: Only 1 in 4 medical-school graduates goes into primary care (the least lucrative area of medicine), and no more than half of nurses and physician assistants do. Just as important, those who do practice general medicine are rarely drawn to work in the rural and inner-city areas where people most lack access to medical treatment. What’s needed is a strategy to lure people who already live in underserved communities to practice health care there. One clever way of doing that, just proposed by a group of authors writing in the November issue of Health Affairs, is inspired by the successful model of emergency medicine -- that is, give people the level of training that emergency medical technicians and paramedics receive, but aimed at primary rather than emergency care. After all, what do EMTs and paramedics do but bring medical skills and equipment to places where doctors and nurses aren’t readily available? In their case, the places are wherever car crashes, heart attacks or other sudden medical catastrophes happen. EMTs and paramedics are also trained relatively quickly and paid relatively modestly, with a mean annual salary of less than $35,000.

    How Big is the Penalty if You Don’t Get Health Insurance? - Stories about the Affordable Care Act often tell readers that they’ll have to pay a $95 penalty if they don’t get adequate health insurance coverage. But, like a lot of other things I read about the health law, that’s not quite correct. The penalty (which the Supreme Court said is actually a tax) could be less or, more likely, a lot more. It’s a complicated story. The basic penalty is $95 in 2014—if you’re unmarried with no dependents and your income is less than $19,500. If your income is higher, you’ll owe more: 1 percent of the amount by which your income exceeds the sum of a single person’s personal exemption and standard deduction in the federal income tax. That’s $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI—that number on the last line on page 1 of your tax return) plus any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200. Still with me? Good, because it is about to get more confusing. If you’re married or have kids, you’ll owe a minimum of $95 per person for yourself, your spouse, and each dependent over age 17 plus half that amount for each child under 18. But the total can’t exceed three times the basic $95 tax, or $285. Except it can. If 1 percent of your income (minus your and your spouse’s personal exemptions and standard deduction—$20,000 in 2013—plus those add-ons) is more than $285, that’s what you’ll owe. Oh, and you’ll have to include your dependents’ income in the calculation.

    Departing Obamacare security official didn’t sign off on site - Tony Trenkle, the Obamacare official in charge of security efforts announced his resignation Wednesday, effective next week.  CBS News has learned that Trenkle, the Chief Information Officer for the Centers for Medicare and Medicaid Services (CMS), was originally supposed to sign off on security for the glitch-ridden website before its Oct. 1 launch, but didn't. Instead, the authorization on September 27 was given by Trenkle's boss, CMS administrator Marilyn Tavenner.  As CBS News reported Monday, security assessments fell behind and the website never had the required top-to-bottom tests.  Trenkle and two other CMS officials, including Chief Operating Officer Michelle Snyder, signed an unusual "risk acknowledgement" saying that the agency's mitigation plan for rigorous monitoring and ongoing tests did "not reduce the (security) risk to the ... system itself going into operation on October 1, 2013."

    How Obamacare will change employer-provided insurance - Millions of Americans are being informed they're being dropped from their insurance plans because the plans don't meet minimum Obamacare standards, but President Obama so far has stood by his promise that "if you have insurance that you like, then you will be able to keep that insurance."Insurance plans that existed on the individual market before the passage of the Affordable Care Act were "grandfathered" in, the president and his supporters have argued, and consumers only lost coverage if insurers altered those policies after the law took effect. In that case, Mr. Obama said last week, insurers had to "replace them with quality, comprehensive coverage." In any event, the administration argues, the promise still applies to the vast majority of people. "If you're one of the 80 percent of Americans who is insured or covered through an employer plan or through Medicare or Medicaid, or the Veterans' Administration, there is no change for you except for an increase in benefits that everyone receives as a result of the Affordable Care Act," White House spokesman Jay Carney said Tuesday. Yet in the years to come, some workers with employer-provided benefits will see their benefits scaled back because of an Obamacare tax. That portion of the law -- known as the "Cadillac tax" -- isn't set to take effect until 2018, but it's already influencing the benefits packages that employers offer.

    Why don’t employers impose an individual mandate? -- On Monday, I mused about whether employers would risk-rate their health insurance offers if they could. I concluded that the answer was “no” due to path dependency (status quo bias). Employer-sponsored plans are community rated, just as will be those offered in the remade individual market. Yet, this is a somewhat controversial aspect of the new marketplaces, even though it’s not controversial for employer-sponsored plan.  That’s odd, and it got me thinking about another novel element of the law that’s controversial: the individual mandate. If we need such a mandate now, why didn’t we perceive a need for one for employer plans before? That is, why don’t employers require employees to take up insurance? That they don’t and that employer-sponsored health insurance — or the large-group market, really — basically works should make us think: Do we need a mandate? One purpose of the individual mandate is to prevent adverse selection (too many sick people signing up) to an extent severe enough to destabilize the market. Though there have been adverse selection problems among plans offered by employers, it’s not a rampant problem for employers in general, at least not those with large enough risk pools (large group). Almost all large employers offer coverage. It’s stable (PDF, see p. 25). Why?

    Why doesn’t competition drive out inefficient health care technology?: So here’s a burning question. There’s a consensus that the primary driver of escalating health-care costs is the rapid adoption of new and expensive medical technology. Much of that technology is untested and of questionable medical value. Yet private insurance plans typically cover most any intervention that physicians say is medically necessary. ...Why? Why don’t private plans compete on price by refusing to cover costly, unproven therapies? ... One answer you sometimes hear is that the law gets in the way. ... We want to contain costs, but the courts won’t let us do it.The law can’t be the real story, however. As it stands, a federal statute—ERISA—gives employer-sponsored plans almost complete freedom to tailor their coverage packages as they like. ... ERISA even shields a plan from liability if it negligently refuses to authorize coverage for care that it (wrongly) thinks is medically unnecessary. As safe legal harbors go, it doesn’t get any better than ERISA.Why, then, are private plans so cautious? I’m speculating a little here... For starters, it’s really hard to make good coverage decisions. The data for making them are usually quite poor... And, absent convincing data, a plan that excludes a promising treatment risks alienating physicians and hospitals (not to mention patients). No individual plan has the right incentives to generate that kind of convincing data because, once it does, its competitors will ... take advantage of the leading plan’s research investments.

    Mishaps and deaths caused by surgical robots going underreported to FDA - The use of robotic surgical systems is expanding rapidly, but hospitals, patients and regulators may not be getting enough information to determine whether the high tech approach is worth its cost. Problems resulting from surgery using robotic equipment--including deaths--have been reported late, inaccurately or not at all to the Food and Drug Administration, according to one study. The study, published in the Journal for Healthcare Quality earlier this year, focused on incidents involving Intuitive Surgical's da Vinci Robotic Surgical System over nearly 12 years, scrubbing through several data bases to find troubled outcomes. Researchers found 245 incidents reported to the FDA, including 71 deaths and 174 nonfatal injuries. But they also found eight cases in which reporting fell short, including five cases in which no FDA report was filed at all. The FDA assesses and approves products based on reported device-related complications. If a medical device malfunctions, hospitals are required to report the incident to the manufacturer, which then reports it to the agency. The FDA, in turn, creates a report for its Manufacturer and User Facility Device Experience database.

    Urologists Who Own Radiation Equipment Use it More … and Probably Unnecessarily - A couple of weeks ago, we wrote about urologists who, according to clinical guidelines, use too much radiation to treat prostate cancer pain. Here’s some related have-you-no-shame prostate cancer news brought to you by your local urologist. According to a study in the New England Journal of Medicine, (NEJM) an awful lot of urologists are making decisions about treatment for their prostate cancer patients based on whether or not they own intensity-modulated radiation therapy (IMRT) facilities. One-third of men whose doctors own such equipment get that therapy for about $35,000 per treatment course. But before they were financially invested in radiation equipment, the same doctors prescribed that therapy for only 13 of 100 of their patients.

    Why Big Pharma Won't Stop Breaking the Law - Did you hear that America's biggest drugmaker just agreed to one of the largest criminal and civil settlements in U.S. history? No, you probably didn't -- because news of Johnson & Johnson's $2.2 billion penalty for illegally marketing one of its drugs was buried today in the business section. Why is a major crime by such a large pharmaceutical company a ho-hum news story? Because it's become a routine one. Big Pharma has been caught breaking the law again and again in recent years, paying gigantic penalities. Before this most recent case, Johnson & Johnson had settled 14 separate cases with the government since 1991, paying a total of $2.33 billion in penalties, according to a report last year by Public Citizen. Nine of these settlements occurred between 2010 and 2012. And Johnson & Johnson is just one of many companies that has been found to repeatedly break the law. Most of the big drugmakers have the same rap sheet. All told, the report found 303 settlements over past 24 years with total penalties of nearly $30 billion.  What kinds of crimes are we talking about here? Serious ones, in many cases. In announcing the settlement with Johnson & Johnson yesterday, Attorney General Eric Holder said the company -- and another firm, Janssen -- had pushed doctors to prescribe an anti-psychotic drug, Risperdal, in ways never approved by the FDA.Think about that: A major drugmaker bribing doctors and putting people's health at risk to make a profit. In other cases, drugmakers have conspired with doctors to overbill and defraud Medicare and Medicaid.

    The antibiotic era is over. And we are cutting health research funding? - The US has significantly cut spending on health research and public health. The sequestration legislation requires that we continue to cut it. Yet there are many life and death problems that urgently require research and public health intervention. One of them is antimicrobial resistance. I want to convey the urgency of this problem, and then point out how ill-advised our current health research funding policies are. US hospitals and communities are increasingly colonized by bacteria that are highly resistant to antibiotic treatment. Perhaps you were aware of this problem, but thought that it was an issue for the future. But a new CDC report makes clear that this is a serious US health problem, right now. The CDC estimates that more than two million people are sickened and that more than 23,000 Americans die each year of antibiotic resistant infections. Compare that to 15,000 deaths per year from AIDS. Dr. Arjun Srinivasan, an associate director at the CDC, summarizes where we are this way: For a long time, there have been newspaper stories and covers of magazines that talked about “The end of antibiotics, question mark?” Well, now I would say you can change the title to “The end of antibiotics, period.” We’re here. We’re in the post-antibiotic era… we are literally in a position of having a patient in a bed who has an infection, something that five years ago even we could have treated, but now we can’t.

    Rickets Making Comeback In The UK, Doctors Say — Rickets, the childhood disease that once caused an epidemic of bowed legs and curved spines during the Victorian era, is making a shocking comeback in 21st-century Britain. Rickets results from a severe deficiency of vitamin D, which helps the body absorb calcium. Rickets was historically considered to be a disease of poverty among children who toiled in factories during the Industrial Revolution, and some experts have hypothesized it afflicted literary characters like Tiny Tim in Charles Dickens' "A Christmas Carol." Last month, Britain's chief medical officer, Dr. Sally Davies, described the return of rickets as "appalling." She proposed the country give free vitamins to all children under 5 and asked the country's independent health watchdog to study if that would be worthwhile. Most people get vitamin D from the sun, oily fish, eggs or dairy products. Rickets largely disappeared from Britain in the 1950s, when the country embarked on mass programs to give children cod liver oil. But in the last 15 years, the number of reported cases of rickets in hospitalized children has increased fourfold — from 183 cases in 1995 to 762 cases in 2011. Experts said the actual number is probably even higher since there's no official surveillance system and it's unknown whether the disease has peaked.

    Drug Combo Cures 97 Percent of Hep C Patients in Study A new drug combination has effectively cured hepatitis C in 97 of the first 100 people, according to clinical trial results published today in The Lancet. Compared with hep C medications that are available for patients now, the experimental drug combination of sofosbuvir with ledipasvir worked faster to eliminate the virus — and had fewer side effects. The drug was also effective for patients with hepatitis C who already had advanced liver disease, called cirrhosis.  “We tested these medicines among HCV patients with genotype 1 HCV infection — the most difficult strain of the virus to treat. Some of these patients had cirrhosis of the liver, or had failed prior therapy with protease inhibitors, and are considered among the most challenging patients to cure of HCV.” The results of the new drug study are important because many of the 3.2 million people in the United States who are infected with hepatitis C can't take currently available hepatitis treatments due to serious side effects including depression and anemia. In addition, certain strains of the hep C virus are resistant to treatment, and in many patients with hep C who complete current treatment regimens, the drugs fail to clear the virus. For these patients, no FDA-approved treatment options remain.

    F.D.A. Ruling Would All but Eliminate Trans Fats - The Food and Drug Administration proposed measures on Thursday that would all but eliminate artery-clogging, artificial trans fats from the food supply, the culmination of three decades of effort by public health advocates to get the government to take action against them. Artificial trans fats — a major contributor to heart disease in the United States — have already been substantially reduced in foods. But they still lurk in many popular products, like frostings, microwave popcorn, packaged pies, frozen pizzas, margarines and coffee creamers. Banning them completely could prevent 20,000 heart attacks and 7,000 deaths from heart disease each year, the F.D.A. said. The proposal is a rare political victory in an era when many regulations to protect public health have stalled. A landmark food safety bill took years to carry out, in part because it collided with the 2012 election season. And rules to regulate the tobacco industry are still stuck, four years after the law calling for them was passed. But just last month, the F.D.A. toughened restrictions on narcotic painkillers over industry objections.

    The U.S. Is Farming More Fish than Ever (But Nowhere Near What China Does) - In a report out last week, the National Oceanic and Atmospheric Administration (N.O.A.A.) reported a total catch of 9.2 billion pounds of seafood for American ports, beating averages for the last 10 years. That’s good news for the wild fisheries off our coasts, but aquaculture – the broad term used for fish farming and stocking sea creatures in wild bodies of water — only made a small increase to account for 5 percent of the American catch. Not so bad, right? After all, fish farming has a well-documented set of issues. The waste, space and antibiotics fish farms require often have a huge impact on surrounding ecosystems and human water supplies. Fish farms could even quicken the pace of rising sea levels. Still, more than 45 percent of the fish Americans eat come from aquaculture enterprises beyond our borders, so at the moment, we are having our farmed tilapia and eating it too.

    Climate Change and the Food Supply - The NY Times has a lead article saying that the IPCC says that climate change will reduce the food supply during a time of global population and income growth and this will lead to higher prices for food and hence increased starvation risk for the world's very poor.  Suppose that everything the IPCC says will happen will indeed happen (and the reported price effect actually looks quite small but let's pretend that the reporter got the magnitude of the effect wrong).  What happens next?  To predict true doom and gloom, you need to believe the following;
    1.  Under new climate conditions, farming cannot be productive in current cold places such as Russia and Canada that will now have warmer winters.  Instead, farming remains where it currently is and just dries up in the heat and drought.
    2.  Human ingenuity and new GMO entrepreneurs will not figure out ways to increase agricultural yields.
    3.  People's tastes for foods are such that we are unable or unwilling to substitute to varieties that can be grown under new climate conditions.
    4. The world's very poor do not enjoy the growth miracle that has lifted hundreds of millions of people out of poverty in China and in many parts of Africa so that they do not have the income to buy foods at higher prices.
    5. The world's engineers do not figure out ways to recycle water and to enhance our stocks of key agricultural inputs.
    6.  Global population growth continues to rise sharply.

    Hottest September On Record, Fastest Pacific Warming In 10,000 Years, Warmest Arctic In 120,000 Years: It’s been a hot week for global warming. NASA released global temperature data showing that this September tied with 2005 for the warmest September on record. That’s doubly impressive since 2005 was warmed by an El Niño and accompanying warm Pacific ocean temperatures, whereas 2013 has had cooler Pacific temperatures all year. Greenhouse gases keep warming the planet to unprecedented levels with unprecedented speed. That’s the conclusion of two new studies out this week. The first, “Unprecedented recent summer warmth in Arctic Canada,” concludes: “Our results indicate that anthropogenic increases in greenhouse gases have led to unprecedented regional warmth.” How unprecedented? The news release explains: Average summer temperatures in the Eastern Canadian Arctic during the last 100 years are higher now than during any century in the past 44,000 years and perhaps as long ago as 120,000 years, says a new INSTAAR study.

    Deep Greenland Sea Is Warming Faster Than the World Ocean — Recent warming of the Greenland Sea Deep Water is about ten times higher than warming rates estimated for the global ocean. Scientists from the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research recently published these findings in the journal Geophysical Research Letters. For their study, they analysed temperature data from 1950 to 2010 in the abyssal Greenland Sea, which is an ocean area located just to the south of the Arctic Ocean. Since 1993, oceanographers have carried out regularly expeditions to the Greenland Sea on board the research ice breaker Polarstern to investigate the changes in this region. The programme has always included extensive temperature and salinity measurements. For the present study, the AWI scientists have combined these long-term data set with historical observations dating back to the year 1950. The result of their analysis: In the last 30 years, the water temperature between 2000 metres depth and the sea floor has risen by 0.3 degrees centigrade. 'This sounds like a small number, but we need to see this in relation to the large mass of water that has been warmed' . 'The amount of heat accumulated within the lowest 1.5 kilometres in the abyssal Greenland Sea would warm the atmosphere above Europe by 4 degrees centigrade. The Greenland Sea is just a small part of the global ocean. However, the observed increase of 0.3 degrees in the deep Greenland Sea is 10 times higher than the temperature increase in the global ocean on average. For this reason, this area and the remaining less studied polar oceans need to be taken into consideration'.

    Global Warming Finally Reaches the Last Arctic Region - Lakes of the Hudson Bay Lowlands, in northeast Canada, are showing evidence of abrupt change in one of the last Arctic regions of the world to have experienced global warming, according to Canadian research published in the Proceedings of the Royal Society B journal. The Hudson Bay Lowlands were one of the last holdouts against the trend of global warming in the Arctic, but has in a very short period succumbed. In contrast to most of the Arctic, the lowlands maintained relatively stable temperatures until at least the mid-1990s. The region has been an Arctic refugium from warming due to the persistence of sea ice on Hudson Bay, the largest northern inland sea, that provides natural cooling. Previous paleolimnological work (the study of lake histories) in the region found that the biological communities of lakes around Hudson Bay had remained stable for hundreds of years – unlike the dramatic shifts in aquatic biota that were observed throughout most of the Arctic in response to warming. But in only a couple of decades, air temperatures in the region have increased at a pace and magnitude that are exceptional – even by Arctic standards. Recent studies by climate researchers on Hudson Bay have been reporting reductions in sea ice that have seen the open-water period lengthen by about three weeks compared to the 1990s. The melting sea ice has accelerated the warming trend of the region, quickly creating a positive feedback response that has increased the warming yet further.

    Scientists: Pacific Ocean heating up faster than in past 10,000 Years - The Pacific Ocean is warming at a faster rate than it has in the previous 10,000 years, suggesting more difficulties in countering the effects of global warming, according to a new study published Friday in the journal Science. The study, "Pacific Ocean Heat Content During the Past 10,000 Years," reconstructs Pacific Ocean temperatures in the last 100 centuries by measuring the chemistry of ancient marine life to recreate the climates in which they lived.In 2003, researchers went to Indonesia to collect cores of sediment from the seas where water from the Pacific flows into the Indian Ocean. They compared the levels of magnesium to calcium in the shells of Hyalinea balthica, a one-celled organism buried in those sediments, in order to estimate the temperature of the middle-depth waters where the organism lived, about 1,500 to 3,000 feet below sea level.The measurements of middle-depth temperatures in this region are representative of the larger western Pacific, the researchers said, since the waters around Indonesia originate from the mid-depths of the North and South Pacific. Based on these findings, researchers concluded that the middle depths have warmed 15 times faster in the last 60 years than they did during natural warming cycles in the previous 10,000 years.

    These Countries Face The Biggest Threats From Climate Change - The expected costs of climate change are painting a grimmer and grimmer picture of the future for people around the world.  In its sixth annual Climate Change Vulnerability Index, risk consultancy firm Maplecroft revealed the countries most likely to suffer from the effects of warming climates by 2025. To develop its analysis, researchers evaluated 193 countries on three factors: the capacity of nations to combat the effects of climate change, exposure to extreme weather events and sensitivity of populations to this exposure in areas such as health and agricultural dependence. Maplecroft then assigned a risk level of "extreme," "high," "medium" or "low," along with a numeric ranking to each country.  According to the report provided to The Huffington Post, Bangladesh, Guinea-Bissau and Sierra Leone have the most "extreme" risk rating. Of cities around the world, Dhaka (the capital of Bangladesh) and the Indian metropolis of Mumbai are the most at risk of being impacted by climate change. Despite its air pollution problems, China is not considered to be one of the nations at extreme risk. However, researchers did assign a risk rating of "high" to the Asian country, ranking it at 61 among the nearly 200 countries.

    Antarctic Sea Ice Takes Over More Of The Ocean Than Ever Before - Antarctica’s sea ice is creeping further out in the ocean! New data from a Japanese satellite shows that sea ice surrounding the southern continent in late September reached out over 7.51 million square miles (19.47 million square kilometers).The extent — a slight increase over 2012′s record of 7.50 million square miles (19.44 million square km) — is the largest recorded instance of Antarctica sea ice since satellite records began, NASA said. Data was recorded using the Advanced Microwave Scanning Radiometer 2 (AMSR2) sensor on the Global Change Observation Mission 1st-Water (GCOM-W1) satellite. “While researchers continue to study the forces driving the growth in sea ice extent, it is well understood that multiple factors—including the geography of Antarctica, the region’s winds, as well as air and ocean temperatures—all affect the ice,” NASA stated. “Geography and winds are thought to be especially important. Unlike the Arctic, where sea ice is confined in a basin, Antarctica is a continent surrounded by open ocean. Since its sea ice is unconfined, it is particularly sensitive to changes in the winds. As noted by the National Snow and Ice Data Center, some research has suggested that changes in Antarctic sea ice are caused in part by a strengthening of the westerly winds that flow unhindered in a circle above the Southern Ocean.” For those thinking that increased sea ice means we can relax about climate change, this humorous video explains the difference between land ice (glaciers) and sea ice (which is generated from snow, rainfall and fresh water). It’s definitely worth four minutes of your time. The part about sea ice starts around 2:45.

    Russia, Ukraine Again Block Antarctic Ocean Protections - The filibuster has gone international. The Convention for the Conservation of Antarctic Living Marine Resources spent the past ten days in Hobart, Australia attempting, for the third time, to pass a measure designating what would be the world’s largest marine protected areas — conservation zones in the Southern Ocean that rings the world’s least populated continent. After failing at last year’s annual meeting, and at a special meeting in Bremerhaven, Germany last summer, the U.S. and New Zealand delegations which had championed the proposal were hopeful that the third time would be the charm. Instead, according to multiple reports, as the meeting wound down, the delegates from Russia and Ukraine effectively borrowed a page from the Ted Cruz playbook. They ran out the clock, refusing to end debate on the measure, thereby preventing it from coming up for a vote before the meeting drew to a close. The Guardian quoted Andrea Kavanagh, director of the Pew Charitable Trust’s Southern Ocean sanctuaries project, saying Russia and Ukraine blocked the measure because they, “wanted to open up more areas for fishing and set a time limit of 10 years. Given that it has taken that amount of time to draw up the protected zones, we would’ve spent more time planning this than protecting it, which is ridiculous.”

    Save the Planet: Drive, Don't Walk - Consider the choice between walking a mile and driving a mile. Walking a mile burns about 200 additional calories, which need to be replaced. McKenzie then looks back into the food supply chain. Only about 13% of the energy used in the production and distribution of food actually ends up as part of the calories that are actually in food. In addition, about one-third to one-half of the calories in the food that is produced are lost somewhere in the chain of production. McKenzie then adds:Moreover, the human body is also not very efficient at converting the potential energy in the food it consumes into useful work: Only about 15 percent of the potential energy in food eaten goes into activities such as walking, as well as maintaining all bodily functions. This means that the energy that the human body actually converts into work is meager percentage-wise—something on the order of 1.3 percent of the fossil fuel energy that is used along the entire length of the food-supply chain. ... Derek Dunn-Rankin, a professor of engineering at the University of California, Irvine and an avid environmentalist, computes that a 180-pound person walking one mile to and from work at a pace of two miles per hour will burn 200 calories above the 2,000 calories burned each day to maintain the body's basic metabolism. However, the production of those 200 calories in food takes fifteen to twenty times as much energy in the form of fossil fuels. This means that driving a high fuel economy car (40 miles per gallon) will use, in fossil fuel energy, only about two-thirds to one half the energy that the person uses in replacing the calories expended on walks.

    Greenhouse Gas Concentrations in Atmosphere Reach New Record - The amount of greenhouse gases in the atmosphere reached a new record high in 2012, continuing an upward and accelerating trend which is driving climate change and will shape the future of our planet for hundreds and thousands of years. The World Meteorological Organization’s annual Greenhouse Gas Bulletin shows that between 1990 and 2012 there was a 32% increase in radiative forcing – the warming effect on our climate – because of carbon dioxide (CO2) and other heat-trapping long-lived gases such as methane and nitrous oxide.  Carbon dioxide, mainly from fossil fuel-related emissions, accounted for 80% of this increase. The atmospheric increase of CO2 from 2011 to 2012 was higher than its average growth rate over the past ten years, according to the Greenhouse Gas Bulletin. Since the start of the industrial era in 1750, the global average concentration of CO2 in the atmosphere has increased by 41%, methane by 160% and nitrous oxide by 20%. According to WMO’s Greenhouse Gas Bulletin, on the global scale, the amount of CO2 in the atmosphere reached 393.1 parts per million in 2012, or 141% of the pre-industrial level of 278 parts per million.The amount of CO2 in the atmosphere increased 2.2 parts per million from 2011 to 2012, which is above the average 2.02 parts per million per year for the past 10 years, showing an accelerating trend. Methane is the second most important long-lived greenhouse gas.    Atmospheric methane reached a new high of about 1819 parts per billion (ppb) in 2012, or 260% of the pre-industrial level, due to increased emissions from anthropogenic sources.  Nitrous oxide is emitted into the atmosphere from both natural (about 60%) and anthropogenic sources (approximately 40%), including oceans, soil, biomass burning, fertilizer use, and various industrial processes. Its atmospheric concentration in 2012 was about 325.1 parts per billion, which is 0.9 parts per billion above the previous year and 120% of the pre-industrial level.  Its impact on climate, over a 100-year period, is 298 times greater than equal emissions of carbon dioxide. It also plays an important role in the destruction of the stratospheric ozone layer which protects us from the harmful ultraviolet rays of the sun.

    World leaders warned time is running out to close widening emissions gap -  As world leaders prepare to meet in Poland for the latest United Nations summit on climate change, a major new report has warned that the chance to limit global temperature rises to below 2C is swiftly diminishing. The United Nations Environment Programme's (UNEP) annual "Gap report", issued today aims to highlight the efforts needed by governments and businesses to avoid catastrophic climate change. This year's report shows that even if nations meet their current climate pledges, greenhouse gas emissions in 2020 are likely to be eight to 12 gigatonnes of CO2 equivalent (GtCO2e) above the level needed to have a good chance of remain below 2C by 2020 on the lowest cost pathway. The report shows that emissions should peak at 44 GtCO2e by 2020 and fall to 22GtCO2e by 2050 to stay within a 2C target, but under a business-as-usual scenario, which includes no emissions pledges, emissions would reach 59 GtCO2e in 2020. Even if countries deliver policies and investments that allow them to meet their current emissions targets, emissions would be just 3-7GtCO2e lower than the business-as-usual scenario, the report warns.

    Obama asks federal agencies to ‘prepare’ for climate change. Here’s what that means.: Climate scientists tend to agree that even if humans stopped burning fossil fuels today, we'd still see some further warming and climate change from all the carbon dioxide we've already loaded into the atmosphere. We'll need to adapt regardless — it's just a question of how much. The White House underscored that point on Friday when it issued a new executive order directing federal agencies to help states and communities prepare for the effects of climate change, including sea-level rise, storms, and droughts. The Obama administration is still focused on cutting U.S. greenhouse gases — the official goal is to get carbon-dioxide emissions down 17 percent below 2005 levels by 2020. That's why regulators have set stricter fuel-economy standards for cars and light trucks — reaching 54.5 miles per gallon by 2025 — and are planning carbon rules for coal- and gas-fired power plants. But those cuts — even if paired with cuts by China, India, and other countries — can't halt climate change entirely. The Intergovernmental Panel on Climate Change (IPCC), for instance, estimates that global sea levels are likely to rise 1 to 2 feet by 2100 even if the world radically constrains its fossil-fuel use.

    'Crazy' climate re-engineering could reduce vital rains, study says - If global warming gases build up so much that record-setting rains, droughts and coastal floods routinely bankrupt businesses and cities, the world's economic and political powers may decide to aggressively re-engineer the global climate. One option is to fill the atmosphere with enough sunlight-reflecting particles to restore surface temperatures to pre-industrial levels. If they do, would all be cool? Absolutely not, according to a new study that asked the question to 12 models forced to simulate the global climate with four times more carbon dioxide in the atmosphere than existed in 1850, the start of the industrial revolution. Under such conditions, reflecting sunlight in order to lower temperatures to pre-industrial levels would cause monsoonal rains to drop 5 to 7 percent below pre-industrial levels. Most previous modeling studies designed to ask a similar question about geoengineering have returned a similar answer: Blocking sunlight in a bid to cool a planet wrapped in a blanket of heat-trapping gases can have the undesired consequence of a reduction in monsoonal rains that much of the world relies on to grow food. "But other (models) said, 'We're not quite sure,' "We find that indeed the models consistently show a reduction of the precipitation with geoengineering," Tilmes said. "When you apply geoengineering in addition to greenhouse gases you do not go back to the conditions before, but actually go below that and reduce precipitation."

    The World's 10 Most Polluted Places (Scientific American) or View a slide show of the top 10 most polluted places in the world.

    Texas-Sized Island of Japanese Debris to Hit the West Coast of North America - We’ve been reporting for years that huge quantities of debris from the Japanese tsunami would hit the West Coast of North America. And see this. The Independent reports:An enormous floating island of debris from Japan’s 2011 tsunami is drifting towards the coast of America, bringing with it over one million tonnes of junk that would cover an area the size of Texas.The most concentrated stretch – dubbed the “toxic monster” by Fox News – is currently around 1,700 miles off the coast, sitting between Hawaii and California, but several million tonnes of additional debris remains scattered across the Pacific.If the rubbish were to continue to fuse, the combined area of the floating junkyard would be greater than that of the United States, and could theoretically weigh up to five million tonnes.*** The latest statistics come from a report last week by the US Department of Commerce’s National Oceanic and Atmospheric Administration.  The NOAA commissioned the report in an effort to predict exactly when and where the giant floating junkyard would make landfall.

    Could the Entire Pacific Fishery Be Tainted by Fukushima? - Distracting the public from the 300 tons of highly radioactive water (80,000 gallons) spreading into the Pacific Ocean every day from the triple reactor melt-through at Fukushima-Daiichi, is news of the plan to build an underground “ice wall” to damn up the poisoned water before it leaks to the sea. The project is reportedly a better plan than the failed concrete wall that Tokyo Electric Power Co. (Tepco) first decided to build. This frozen finger-in-the-dike won’t be completed until 2015, and it will then fail. Even if it were to work as planned, there is a risk of reversing the water flow, forcing highly radioactive water to seep out from the reactor buildings to the aquifer. Meanwhile, nothing is slowing the relentless radioactive contamination of the Pacific — the world’s largest ocean which covers about a third of Earth. What we’re being distracted from is the threat to the fishery caused by Fukushima’s ongoing radioactive gusher. At least 300 tons of cesium- and strontium-contaminated water is still spewing into the Pacific every day. Tepco admitted in August that this massive carcinogenic hemorrhage has been going on since March 11, 2011. It amounts to about 85 million gallons — 80,000 gal. per day, for 942 days, dumped into the Pacific — and counting. The radiation dumped by Fukushima into the environment has exceeded that of the 1986 Chernobyl catastrophe, so we may stop calling it the second worst nuclear power disaster in history. Total atmospheric releases from Fukushima so far are between 5.6 and 8.1 times that of Chernobyl, according to the 2013 World Nuclear Industry Status Report. “The situation is not under control. Almost every day new things happen, and there is no sign that they will control the situation in the next few months or years.”

    Radiation from Japan nuclear plant arrives on Alaska coast - Scientists at the University of Alaska are concerned about radiation leaking from Japan's damaged Fukushima nuclear plant, and the lack of a monitoring plan. Some radiation has arrived in northern Alaska and along the west coast. That's raised concern over contamination of fish and wildlife. More may be heading toward coastal communities like Haines and Skagway. Douglas Dasher, a researcher at the University of Alaska Fairbanks, says radiation levels in Alaskan waters could reach Cold War levels. "The levels they are projecting in some of the models are in the ballpark of what they saw in the North Pacific in the 1960s," he said. John Kelley, a professor emeritus at the University of Alaska Fairbanks, says he's not sure contamination will reach dangerous levels for humans but says without better data, who will know? "The data they will need is not only past data but current data, and if no one is sampling anything then we won't really know it, will we? "The general concern was, is the food supply safe? And I don't think anyone can really answer that definitively."

    Japanese Mafia Feared in Charge of Fukushima Cleanup - Gaius Publius - Like most things in Japan, if the yakuza really are in charge of the remediation, it may not be what it seems. Cynically, Tepco has done such a terrible job that it’s hard to see how anyone could do worse. But the status of the yakuza is not exactly the same as the mafia. Those who are current please correct me if my information is stale but the yakuza aren’t so much a crime organization as an officially sanctioned group in charge of illegal rackets. That may sound like a distinction that is not a difference, but it actually is different. The yakuza have a deal with the police. They were allowed to run prostitution and gambling rings but the quid pro quo was that they keep hard drugs out of Japan. They were allowed to take any measures necessary to stamp out competing crime groups that tried to bring drugs to Japan. So the yakuza are a crime franchise. Now I actually can see some logic in having the yakuza in. I’ve read (and this is where readers can help, my recollection may be incorrect) that a big reason the site has not been cleaned up is that certain necessary operations would kill whoever attempted them. Only the yakuza could take people and have them do dangerous work under duress with inadequate disclosure about danger (although you’d have to be an idiot not to know that this was somewhere between risky and potentially fatal; it’s also not impossible that a few were people destined to be killed who are told if they cooperate and work at the plant, their families will be taken care of). This way, the government gets its conscript workers to perform deadly tasks and pretends it doesn’t know what is happening. Nevertheless, it seems inconceivable that officials would let Fukushima get even more out of control by letting the yakuza play a major role unless they were doing some sort of dirty work that the government or Tepco could not do openly itself.

    Climate scientists: ‘There is no credible path to climate stabilization that does not include a substantial role for nuclear power’ - I am always on the lookout for issues that can get some degree of bipartisan support. Expanding the role of nuclear power in America’s energy portfolio should be one of those issues. Last Sunday, big-name climate and energy scientists released an open letter in support of nuclear power. This is the key bitRenewables like wind and solar and biomass will certainly play roles in a future energy economy, but those energy sources cannot scale up fast enough to deliver cheap and reliable power at the scale the global economy requires. While it may be theoretically possible to stabilize the climate without nuclear power, in the real world there is no credible path to climate stabilization that does not include a substantial role for nuclear power. This is a line that’s been pushed hard by Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute, who also see how the issue can bring climate change believers and skeptics together: Help might come from an unlikely alliance between climate skeptics and climate scientists. That’s because both groups tend to be strongly pro-nuclear, albeit for completely different reasons. Two of the country’s leading conservative writers on energy and the environment, Steve Hayward, formerly of American Enterprise Institute, and Robert Bryce of Manhattan Institute, express great skepticism of the climate science while advocating nuclear energy. “The smartest, most forward-looking U.S. energy policy,” wrote Bryce, “can be summed up in one acronym: ‘N2N’,” — meaning going to natural gas and then to nuclear power.

    How The American Coal Industry Found Itself In An Economic No Man’s Land - American coal country is in a contradictory position. Increases in productivity cut the industry’s employment by tens of thousands over the last few decades, the natural gas boom that’s eaten away at coal’s share of the power sector may be about to bust, but it’s not clear coal can expand to take advantage of the opening. So at a Congressional hearing last week — looking into the impact on coal-dependent communities of new regulations for power plants — the anger was palpable, if also confused. Earlier this year, the Environmental Protection Agency (EPA) announced limits on carbon dioxide emissions from new power plants. Limits for already operating power plants will be released in 2014. Given the strictness of the rules, and the fact that coal is by far the power sector’s most carbon-intensive fossil fuel, critics have called the regulations an effective ban on new coal plants. Many of the witnesses and Congress members at Tuesday’s hearing were ready to lay responsibility for the coal industry’s woes at the feet of the EPA’s new rules — sometimes openly agreeing that President Obama is waging a “war on coal.” Albey Brock — a judge from Bell County, Kentucky — estimated in his testimony that job losses in Eastern Kentucky’s coal mining industry over the last two years sucked $1 billion out of the regional economy.  The problem is neither Brock nor anyone else made any effort to tease out how much of the job loss can be attributed either to past EPA regulations, or to anticipation of the incoming carbon emission rules. Coal jobs in Western Kentucky are on the upswing, as are coal jobs nationally. Most of coal’s massive employment collapse since 1980 could be chalked up to technological advancement and increased productivity, which naturally allow an industry to achieve the same amount for less labor.

    Billion litres of coal-mine muck leaks into Athabasca River - Geotechnical engineers remained at the Obed Mountain coal mine Sunday trying to determine how one billion litres of murky water leaked from a containment pond into the Athabasca River. A barrier gave way on Halloween, allowing liquid containing coal dust, sand and dirt to flow through two creeks into the Athabasca, said Darin Barter, a spokesman for the Alberta Energy Regulator. “I haven’t seen this happen. Coal mine incidents and pit leak incidents are really rare,” he said. “I was surprised this could happen.” The Obed Mountain mine, owned by Sherritt International and now undergoing reclamation since operations were suspended last November, is about 30 kilometres northeast of Hinton. The dirty water travelled 25 kilometres to the Athabasca, forming a muddy plume now floating downstream, Alberta Environment spokeswoman Jessica Potter said. Department staff and Alberta Health Services were analyzing water samples to determine if anything in the sediment could cause environmental or health problems, she said. “There’s actually quite a noticeable change of colour (in the river),” she said. “It’s like muddy water … murky, muddy water.”

    Carbon Capture and Storage Can Cause Earthquakes, Making It ‘A Risky And Likely Unsuccessful Strategy’ - New research suggests that carbon capture and storage (CCS) may be a far more limited climate solution than previously thought because it can induce earthquakes, which can cause CO2 leakage. We’ve known for a long time that underground injection of massive quantities of liquids or high-pressure gases can induce earthquakes. Indeed, recent research finds that fracking wastewater reinjection has caused “a rise in small to mid-sized earthquakes in the United States.” As Stanford researchers made clear in 2012: We argue here that there is a high probability that earthquakes will be triggered by injection of large volumes of CO2 into the brittle rocks commonly found in continental interiors. Because even small- to moderate-sized earthquakes threaten the seal integrity of CO2 repositories, in this context, large-scale CCS is a risky, and likely unsuccessful, strategy for significantly reducing greenhouse gas emissions. Even a very small leakage rate of well under 1% a year would render the storage system all but useless as a “permanent repository”. Seismologists studied why a Texas oil field had “93 well-recorded earthquakes occurring between March 2009 and December 2010,” some of which exceeded Magnitude 3. They found a close correlation between these quakes and large-scale CO2 injections into the field.  One expert who reviewed the study before publication said: “The bottom line here is … carbon dioxide injection under high enough pressures and with high enough volume could induce seismicity just like any other fluid at high enough pressures and with high enough volume. We see (quakes) fairly often with water injection. We know that that can often trigger seismic events and sometimes those can be quite large. So, it isn’t really a surprise that carbon dioxide injection does the same thing.”

    Study Shows Carbon Sequestration Can Cause Quakes - Two scientists have found evidence that underground carbon dioxide injection in oil and gas fields may cause earthquakes, a finding that suggests carbon sequestration projects could shake the earth, too. Carbon sequestration projects, also called carbon capture and storage, or CCS, projects, are thought to be one solution to reducing climate change-fueling carbon dioxide emissions from coal-fired power plants and other sources. Several such projects are currently being studied across the country. Though scientists have speculated that it's possible that injecting gas underground could cause seismic activity, there had been no hard evidence, until now. Seismologists Wei Gan of China University of Geosciences and Cliff Frohlich of the University of Texas-Austin investigated why a West Texas oil field experienced 93 earthquakes in 2009 and 2010, some of which were Magnitude 3 or greater, and they were surprised by what they found.Frohlich said he originally thought the earthquakes were caused by an oil production process called “waterflooding,” which involves the injection of large amounts of water into the ground to help move oil deposits into wells, increasing crude oil production.“I was surprised when I found the quakes in West Texas appear to be caused by carbon injection,” he said.

    Obama Administration Just Invested $84M In A Clean Coal Technology That Might Cause Earthquakes - The Obama Administration announced on Thursday that it has invested $84 million to reduce the cost of carbon capture and storage (CSS), a method of gobbling up carbon dioxide emissions from coal plants before they enter the atmosphere and storing the emissions underground. On the one hand, U.S. Department of Energy Secretary Ernest Moniz purports that CSS will help control climate change by allowing the country “to use our abundant fossil fuel resources as cleanly as possible.” On the other hand, the technology “hasn’t yet proven to be practical, affordable, scalable, and ready to be ramped up rapidly,” according to Climate Progress’ Joe Romm, citing a Businessweek report claiming the emissions from just one coal-fired plant would require an underground storage space the size of a major oil field.  What’s more, a report released just three days before DOE’s investment announcement found a correlation between 93 earthquakes at a Texas oil field and the fact that there had been large-scale CO2 injections there. The earthquakes generally had Richter scale magnitudes of three and larger.  The findings compliment 2012 research from the U.S. Geological Survey which found a strong link between earthquakes and injections of wastewater into deep underground wells. In addition, research by Stanford University in 2012 warned of a “high probability” of earthquakes triggered by large-scale CSS, calling it a “risky, and likely unsuccessful, strategy for significantly reducing greenhouse gas emissions.”

    11/4/2013 — Fracking Earthquake SWARM in Central Oklahoma - Over the past 7 days, we’ve seen a large increase in movement across the South to Northwest edge of the North American Craton. The transferred pressure (coming from the WEST), is having a ‘spillover’ effect, cascading small to moderate earthquakes across the defined edge of the North American plate.Oklahoma, already a weak spot, now further weakened by literally thousands of deep injection / extraction wells, which penetrate the cratons edge — attempting to extract natural gas from the shale deposits, also DISPOSING of waste water via old oil wells.   Add in a bit of carbon capture into the mix as well, all combining to form a “perfect geo-seismic storm”.We’ve seen this activity before, in Oklahoma, Arkansas, Colorado, Illinois, and Texas.  First, we see single, moderate earthquakes in the 3.0M to 4.0M range occur at the fracking operations in OK, and AR.  Then, following the moderate movement, we usually see a series of individual smaller 2.0M quakes, subsequently followed by a swarm as we’re seeing now.  Ultimately, following the frack quake swarms, we usually see a few borderline 5.0M events occur anywhere along the edge of the plate, from the East coast through the south-midwest (OK and AR), all the way Northwest .

    Oklahoma Scientist to Test if Fracking Causes Earthquakes - Oklahoma is a leading U.S. energy producer with an economy increasingly concentrated on the oil and gas industry. Economist and Dean of the University of Central Oklahoma’s College of Business Administration, Dr. Mickey Hepner, notes that roughly 25 percent of all employment in Oklahoma is either directly or indirectly connected to the energy industry. The good news is that much of Oklahoma’s output increasingly comes from releasing subterranean hydrocarbons via hydraulic fracturing, or “fracking,” a controversial technique that involves injecting liquids containing a variety of substances deep underground to break up geological formations to release trapped deposits of natural gas. The bad news in Tulsa is that since fracking began, the state has experienced a rise in seismic events. In a report entitled “Earthquake Swarm Continues in Central Oklahoma,” released on 22 October in partnership with the Oklahoma Geological Survey, the U.S. Geological Survey noted, “Since January 2009, more than 200 magnitude 3.0 or greater earthquakes have rattled Central Oklahoma, marking a significant rise in the frequency of these seismic events… Studies show one to three magnitude 3.0 earthquakes or larger occurred yearly from 1975 to 2008, while the average grew to around 40 earthquakes per year from 2009 to mid-2013.

    WSJ's Zuckerman: Fracking May Be Bigger than Housing Bubble, Tech Boom: Hydraulic fracturing, or fracking, is helping the United States surpass Russia as the world's biggest producer of oil and gas and its importance can't be understated, says Wall Street Journal reporter Gregory Zuckerman, author of the new book, "The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters." "Fracking is the biggest boom since the housing bubble and even maybe the tech boom," he tells Yahoo. "It's affecting all kinds of cities and industries. It's changing geopolitics," giving the United States more freedom in its Mideast policy from Saudi Arabia, for example. While fracking may not be able to make the United States energy dependent, it can make us "energy secure," Zuckerman contends. He acknowledges there are safety issues surrounding fracking, but says it can be good for the environment, as it enables industry to shift from coal. To be sure, "it's only good if we're not emitting too much methane along with the natural gas," Zuckerman adds. "When done properly, it's really a benefit. But often they make mistakes."

    Great Expectations, Deferred - Still waiting for large, economy-wide job increases from the "shale revolution" From Goldman Sachs, "Is the Economy Gaining “Fracktion?”" (not online): There is little evidence of significant “induced” employment growth in downstream manufacturing industries. Similarly, cap-ex in energy intensive sectors that might be expected to benefit most from the shale boom has not outperformed cap-ex in other sectors during the recovery, although it did decline by less during the recession. On top of fears that the surge in unconventional oil and natural gas will not be enduring [1] [2] [3], there remains some doubt that the development of fracking will be the game-changer that many have claimed – at least with respect to macroeconomics. (Prominent studies include IHS (2012), McKinsey (2013).) Below I turn first to a discussion of employment growth in core oil and gas extraction. Then I discuss the extent (or non-extent) of spillover effects to the rest of the economy.

    Pennsylvania: State Dirty Energy Money Analysis -  In recent years, the oil and gas industry has been on the march in Pennsylvania. Home of the Marcellus Shale formation and a historically productive coal state, Pennsylvania is a true battleground in the expansion of the fossil fuel industry. Analysis by Oil Change International shows that, since 2006, the fossil fuel industry has provided over $4.4 million in direct campaign contributions to members of the Pennsylvania General Assembly. In that time, overall contributions have doubled, from roughly $800,000 during the 2006 cycle, to over $1.6 million in total giving during the 2012 election cycle. As you can see in the graph below, there is a large partisan split in contributions and it’s currently increasing. The oil and gas sector, in particular, has seen a marked and steady increase in political spending in recent years, more than doubling between 2006 and 2012. At the same time, Pennsylvania has seen a boom in natural gas production thanks to the controversial practice of hydraulic fracturing (“fracking”).
    CASE STUDY: Senate Bill 259: Senate Bill 259 was a massive legislative win for the fracking industry. The bill, introduced by Senator Gene Yaw (R) (who has received $41,650 in money from the oil and gas industry since 2006) passed unanimously in the Senate and by a vote of 167-33 in the House. The bill guts decades-old law that helped protect landowners from predatory oil and gas lease practices. Analysis of the vote shows how successful the oil and gas industry’s investments in the Pennsylvania legislature have been. Senators and Representatives voting in favor of this bill have accepted a total of $4,137,533 in dirty energy money contributions since 2006. On average, each member of the Assembly and Senate that voted in favor of fossil interests received 5x more than those who voted against.

    Handouts For Frackers: The Pennsylvania Plan To Give Drillers $1 Billion - Supporters of the fossil fuel industry like to portray expanded drilling as a free market triumph. But in Pennsylvania, taxpayers could have to pick up the tab for gas drillers to extract highly-valuable natural gas, to the tune of $1 billion over a decade.Pennsylvania’s Republican controlled legislature is considering bills to pay for a processing project, pipeline construction, compressed natural gas vehicles, and fueling stations, in addition to subsidies to convince a huge Royal Dutch Shell refinery to set up shop. The refinery alone could cost over $1 billion over 25 years. About one-fifth of the money handed out to energy companies would come from a $200 million-a-year drilling tax on the industry, but the other four-fifths would come out of taxpayers’ pockets. Of course, these welfare-for-drillers policies are nothing compared to the costs that the government and society bear from CO2 emissions and other pollutants emitted by burning fossil fuels. But none of this means drillers are going to stop whining about the government “picking winners and losers” when it subsidizes clean fuels without the negative externalities of burning hydrocarbons.

    Oil Lobbyists Treated California Lawmakers To A $13,000 Dinner The Week Before A Major Fracking Vote - A major oil lobbying group spent $13,000 on a dinner for California lawmakers just one week before the state’s watered-down fracking regulatory bill passed the state Legislature, according to the state’s quarterly reports.  The Sacramento Bee outlined the heft of the oil and gas industry’s spending leading up to the bill’s vote, which was signed into law by Gov. Jerry Brown on September 20. From July 1 to September 30, three oil and gas groups spent the most money lobbying out of all the interest groups in the state. Chevron spent $1,696,477; Aera Energy LLC spent $1,015,534; and the Western States Petroleum Association spent $1,269,478, $13,000 of which went towards a dinner for 12 state lawmakers and two staff members at “one of Sacramento’s poshest venues,” according to the Bee.

    Texas Homeowner Battles $3 Million Defamation Lawsuit For Exposing Fracking Company’s Pollution - Steve Lipsky, a Texas homeowner, has found himself at the center of a $3 million lawsuit for defamation from an oil and gas company, after he exposed the company for contaminating his water supply with methane and benzene. Despite his attempts to avert the expensive legal entanglement, Julie Dermansky reports at DeSmogBlog that last month the Fort Worth Court of Appeals allowed the defamation case to move forward. Lipsky sued Range Resources originally in 2011, prompted by an Environmental Protection Agency order that Range Resources endangered Texas residents’ health. His case was dismissed, because the presiding judge claimed there was no jurisdiction, but Range Resources took the unusual step of countersuing Lipsky for libel. It alleged that Lipsky and others conspired to get “the EPA and the media to wrongly label and prosecute Range as a polluter of the environment.” The company said that his public video of Lipsky lighting on fire a methane-filled hose escaping from his water well was an unfair portrayal, even though Lipsky maintains he can still set the water on fire in a video from October.  “The hose was used in the interest of safety, not to deceive anyone,” Lipsky told DeSmogBlog, before lighting fire at the end of the hose again. But according to Range Resources and the judge who dismissed Lipsky’s lawsuit in 2012, Lipsky could not possibly light his water on fire. The video “was not done for scientific study but to provide local and national news media with a deceptive video, calculated to alarm the public into believing the water was burning,” the judge wrote at the time.

    Is Fracking All We Have To Worry About? -- As demonstrations grow against “fracking” in the UK, another controversial gas extraction method has quietly been licensed. Underground Coal Gasification, or UCG, is the drilling of wells to set fire to underground coal seams and the channelling of the mixture of gas by-products including hydrogen, carbon monoxide, methane and large volumes of carbon dioxide up to the surface. Two well heads are required in the UCG process, one to inject air or oxygen down to the coal chamber and another to extract the resulting mix of gases produced by burning the coal underground. Water taken either from the surface, or from below the ground is also required for the UCG process (over and above the water private companies already want to use for “fracking”). Once the gas runs out in the initial well location, the well heads are moved to follow the coal seam. This process leaves behind underground caverns contaminated with toxic waste, as well as scarring the countryside further as the wellheads creep along. But scarring the countryside is the least of the environmental risks caused as a direct result of UCG gas extraction methods. Reports on onshore UCG trials from America in 1993, Australia in 2011 and India in 2012 state UCG onshore trials had to be halted after groundwater was contaminated.  Contaminants included benzene – which can cause leukaemia and bone marrow abnormalities in humans and animals – and toluene, which can affect the kidneys, nervous system, liver, brain and heart as well as causing miscarriages.

    Fracking Industry Could Bear Heavy Economic Burden Under Silica Rule - The Occupational Safety and Health Administration's proposed silica rule could cost the hydraulic fracturing industry more than any other industry, according to an Oct. 24 Bloomberg Government analysis.The proposal would impose the highest costs on companies that provide fracking services as a percentage of its annual revenue, compared with other sectors, the analysis found. The annual estimated compliance cost per fracking worker potentially exposed to silica would also be much higher than for workers in other industries.  OSHA did not initially consider the economic impact of the proposed silica rule on the fracking industry, “It was known that the rule was going to have a big impact,” “The surprising and striking thing is the industry that would be the hardest hit turns out to be fracking.” The American Petroleum Institute, Independent Petroleum Association of America and Association of Energy Service Companies all declined Bloomberg BNA requests for comment.

    What You Read On Might Be Written By The Fossil Fuel Industry - MSNBC relaunched on October 30 with a pretty new website, an impressive slate of newly-hired progressive reporters, plus a couple of questionable “launch partners,” corporate sponsors who will write content for the site. General Electric (GE) and America’s Natural Gas Alliance (ANGA) will contribute “native advertisements,” meaning ads branded as MSNBC stories, to the news site in exchange for sponsorship.  GE owns 49 percent of NBC Universal, parent company of MSNBC. ANGA is a natural gas industry group that promotes increased natural gas exploration and drilling and discourages regulation. An ANGA spokesperson recently told the Los Angeles Times that using more natural gas “can substantially reduce greenhouse gas emissions,” which is not true over the long term. It is as yet unclear what America’s Natural Gas Alliance will cover, though it will be featured in sponsored polls housed in a section focused on facts about natural gas. It is unknown whether that entire section will be an advertisement. GE’s will focus on the “Industrial Internet,” the “Brilliant Machines Innovation,” and how they are impacting our world.

    Greenhouse gas reduction called threat to oil industry - Alberta's proposed oil and gas regulations are too ambitious and will hobble the Canadian industry's ability to compete, says the industry association in Alberta government documents obtained through provincial freedom of information laws. The industry group says the proposed regulations won't buy any goodwill and the government should delay their introduction. The 200-page trove of memos, correspondence and reports offers a rare glimpse behind boardroom doors at the negotiations between industry and government to craft rules to reduce greenhouse gas emissions. The Canadian Association of Petroleum Producers offers blunt assessments of Alberta's plan to introduce rules that would demand industry reduce greenhouse gases by 40 per cent per barrel and charge $40 per tonne of CO2 above that level.

    Fossil Fuels Receive $500 Billion A Year In Government Subsidies Worldwide - Producers of oil, gas and coal received more than $500 billion in government subsidies around the world in 2011, with the richest nations collectively spending more than $70 billion every year to support fossil fuels.Those are the findings of a recent report by the Overseas Development Institute, a think tank based in the United Kingdom.  “If their aim is to avoid dangerous climate change, governments are shooting themselves in both feet,” the report, headed by ODI research fellow Shelagh Whitley, said. “They are subsidizing the very activities that are pushing the world towards dangerous climate change, and creating barriers to investment in low-carbon development and subsidy incentives that encourage investment in carbon-intensive energy.” While the report acknowledges there is currently no globally agreed definition of what constitutes a subsidy, it cites the World Trade Organization’s approach: “a subsidy is any financial contribution by a government, or agent of a government, that confers a benefit on its recipient.”

    Fossil fuel subsidies 'reckless use of public funds': The world is spending half a trillion dollars on fossil fuel subsidies every year, according to a new report. The Overseas Development Institute (ODI) says rich countries are spending seven times more supporting coal, oil and gas than they are on helping poorer nations fight climate change. Some countries including Egypt, Morocco and Pakistan, have subsidies bigger than the national fiscal deficit. The new report calls on the G20 to phase out the payments by 2020. While there is no globally agreed definition of what a fossil fuel subsidy actually is, the report draws on a range of sources from the International Monetary Fund to the International Energy Agency. It details the range of financial help given to oil, coal and gas producers and consumers from national governments and through international development. What emerges is a complicated web of different types of payments in different countries.

    Crude oil leading commodities slump - As discussed earlier (see post), crude oil (particularly WTI) remains under pressure. As US economic activity slowed (see post), so did the demand for crude. This pushed up inventories to 5-year highs for this time of year. The rise in crude inventories can be explained by the fact that US oil production is now 15% higher than it was a year ago, while refinery demand has declined to levels that are similar to last year's. One can see the impact of the government shutdown in the chart below, as refineries cut production. Moreover, with the Fed's "taper" looming and the dollar seemingly stable, traders have sent crude prices lower. The weakness in the energy complex has spread to other sectors, pressuring the overall global commodity indices. For example, the CRB BLS Index (described here) is at this year's lows. While energy remains the largest driver, demand weakness combined with strong production seems to be pressuring a number of other commodities sectors as well. Bloomberg: - West Texas Intermediate fell below $95 a barrel for the first time since June. Gold reached a two-week low. Hog futures capped the longest slump in three months, and cotton slumped to the lowest since January.  Production is poised to top demand for everything from coffee to zinc as ample rains this year boosted global crops and demand waned for metals, grains and energy. U.S. crude inventories climbed to the highest since June,

    US seeks ‘first step’ nuclear deal with Iran - The US is looking to negotiate a “first step” deal with Iran which would halt parts of its nuclear programme in return for modest suspension of sanctions, a senior US official said on Wednesday ahead of a crucial new round of talks. The initial agreement could last for six months and would “put time on the clock” in order to allow for a more detailed negotiation about Iran’s nuclear programme. The administration official also warned that any effort by the US Congress to impose new sanctions on Iran could scupper the negotiations. “For the first time, Iran appears to be committed to moving this negotiating process forward quickly,” the US official said. “We do not see them using the negotiating process to buy time.” US officials said that many of the details of this first stage deal with Iran had been discussed and suggested that some form of agreement could be reached this week. Together with five other world powers, the US will resume talks on Thursday with Iran in Geneva over its nuclear programme, which some observers in the west believe is getting close to the point where Iran could quickly push towards a nuclear bomb.

    Congress versus Obama on Iran - As the first step in a de-escalation deal whose details have yet to be worked out, Iran would agree to strict safeguards to prevent the enrichment of uranium to a degree that could be used for the development of nuclear weapons. Further lessening of sanctions would be dependent on further Iranian concessions. A bipartisan coalition on Capitol Hill, however, opposes even this modest first step. The group is pushing legislation that would make such an interim agreement impossible. The election of moderate cleric Hassan Rouhani as Iran's new president this summer sent a clear message that the Iranian people wanted to end the country's isolation and improve relations with the United States by negotiating a mutually agreeable settlement. "I would say we really are beginning that type of negotiation where one could imagine that you could possibly have an agreement."  Unfortunately, rather than respond positively to Rouhani's election, the US House of Representatives - just two days before his inauguration in August - voted by an overwhelming 400-20 margin to impose punitive new sanctions on Iran. The measures targets Iran's foreign reserves and attempts to end all Iranian oil sales by 2015, with the goal of plunging the country into a debilitating economic depression. It was a bipartisan rejection of the new president's offer to enhance nuclear transparency and pursue "peace and reconciliation" with the West.

    Saudi nuclear weapons ‘on order’ from Pakistan - Saudi Arabia has invested in Pakistani nuclear weapons projects, and believes it could obtain atomic bombs at will, a variety of sources have told BBC Newsnight. While the kingdom's quest has often been set in the context of countering Iran's atomic programme, it is now possible that the Saudis might be able to deploy such devices more quickly than the Islamic republic. Earlier this year, a senior Nato decision maker told me that he had seen intelligence reporting that nuclear weapons made in Pakistan on behalf of Saudi Arabia are now sitting ready for delivery. Last month Amos Yadlin, a former head of Israeli military intelligence, told a conference in Sweden that if Iran got the bomb, "the Saudis will not wait one month. They already paid for the bomb, they will go to Pakistan and bring what they need to bring."

    China Is Choking on Its Success - Walking through Beijing’s Tiananmen Square last week, a German family of five surrounded me, all wearing large face masks and sunglasses. They weren’t robbing me, just asking me to take their photo. When I yelled the customary “Say ‘cheese,’” the dad joked: “We are smiling under here.”  Only China’s pollution bubble is no laughing matter, and tourists tell the story. Thanks to extreme air pollution, foreign arrivals plunged by roughly 50 percent in the first three-quarters of the year. Beijing could see even fewer visitors to the Forbidden City, the Great Wall and the famous square dominated by a painting of Mao Zedong thanks to images of acrid smog that have been beaming around the globe.

    China Services Index Rises to Year’s High in Rebound Sign - China’s Communist Party leaders will enter a policy-making summit this week with the economy on an upswing, services and manufacturing surveys show. A non-manufacturing Purchasing Managers’ Index (CPMINMAN) rose to the highest level this year in October, a government report showed yesterday. The increase follows faster-than-estimated growth in two manufacturing indexes last week. Signs of sustained strength in the world’s second-largest economy may give President Xi Jinping and Premier Li Keqiang more confidence in tackling reforms. At the same time, excessive credit growth, rising local-government debt and weaker export momentum may cap a stronger recovery from a two-quarter slowdown. “Growth momentum will still be relatively robust” in the fourth quarter, . “The government will tone down its pro-growth rhetoric but there won’t be a significant tightening of monetary policy as new leaders still need a stable economic and financial environment to consolidate their power base.”

    China's Service PMI Hits High - China’s service sector has just experienced its fastest growth this year, indicating that Asia’s powerhouse economy is on the road to recovery. The non-manufacturing Purchasing Managers’ Index (PMI) for the world’s second-largest economy rose to 56.3 in October from 55.4 for the previous month, reports the BBC. The manufacturing PMI also rose to an 18-month high in October. China’s economy slowed in the first two quarters of 2013 after years of often double-digit growth. The country’s service sector, which includes construction and aviation, makes up almost 43% of its total economy. New Chinese President Xi Jinping has said that China’s economy will continue to grow steadily, although likely at a slightly reduced rate as the country embarks upon a new stage of development.

    China's Economic Rebalancing and Lessons from Japan, South Korea and Taiwan - China’s senior leaders have spoken for some time about the need to rebalance the economy away from such heavy reliance on exports and investment, towards internal consumption. This paper examines the earlier development experiences of Japan, South Korea, and Taiwan in order to shed light on the questions of whether China really needs to rebalance towards consumption and how it might be accomplished.  The unique aspects of China's development likely stem from key institutional features of its model: the hukou system limiting rural-urban migration, the large role of state enterprises in the economy, financial repression, and the system for evaluating and rewarding local government officials. These factors together create a heavy bias in the Chinese system against household income and consumption, and in favor of investment and exports. Reform of these institutional features provides the best hope of smooth adjustment of China’s economy away from investment towards consumption.

    Fed’s Williams: Bubble Risks Rising In China Economy - Federal Reserve Bank of San Francisco President John Williams warned on Friday of brewing financial instability in China, and said that nation needs to increase domestic consumption to help reduce the risks of trouble. Much as China needs reform of its financial sector and more consumer spending, he said the U.S. needs to do more to live with its means. Mr. Williams made limited comments about monetary policy in a speech that was prepared for delivery before an audience in Los Angeles. He said “with continued support from accommodative monetary policy, I expect the economy to continue to expand and add a significant number of jobs, resulting in declining unemployment next year and in 2015.” He said “quite low” inflation will move back toward the central bank’s 2% target over time. Most of the official’s speech was devoted to China’s current economic situation. While he views the nation’s relative resilience through the years of the financial crisis and its aftermath as quite remarkable, Mr. Williams sees a lot of potential problem spots. Many of them are financial in nature. The official noted widespread fears of a bubble in China’s lending sector. He noted the rise in China’s corporate and household debt as a share of GDP have risen more than twice the rate seen in the U.S. between 2002 and 2008, just ahead of the financial crisis. Mr. Williams noted “such rapid increases in borrowing have historically raised the risk of crises in other countries.” Meanwhile, “the resilience of housing prices in the face of concerted policy efforts adds to the worry that a bubble may be forming” in that part of the Chinese economy, the official said. But at the same time, China could face trouble if it tries to lean against the developments too strongly. “Though a real-estate bubble is a risk, there is also concern that economic growth could weaken too much and too quickly,”

    Credit Boom in China Could Trigger Bigger Crisis Than 2008; Three Things China Wants, Eight Things China Needs - In case you think all is well with China and the Yuan will soon replace the dollar as the world's reserve currency, you may wish to reconsider. Credit growth in China is expanding at a massive rate on nonviable projects, and that is the only reason China has been able to meet its growth targets. Marc Faber believes China could spark a bigger crisis than in 2008An alarming credit boom in China could trigger a global financial crisis that would make the one in 2008 look mild by comparison, says old gloomy eyes, Marc Faber. “If I am telling you that we had a credit crisis in 2008 because we had too much credit in the economy, then there is that much more credit as a percentage of the economy now,” the author of The Gloom, Boom & Doom Report told CNBC late Thursday. “So we are in a worse position than we were back then.” China, in particular, has seen credit as a percentage of the economy jump 50% in the last four and a half years, said Faber, the “fastest credit growth you can image in the whole of Asia.”  Meanwhile, Deutsche Bank strategist John-Paul Smith told clients on Wednesday that China’s growth model continues to be based on “ever-expanding debt, which leaves the country and financial markets very vulnerable to any potential loss of from investors and lenders.”

    China prepares to liberalise finance as hedge funds and estate agents salivate - The freeing up of China's economy over the past 35 years has been methodical. First it was agriculture. Then it was industry. Now, the next phase of liberalisation planned by the ruling cadre of the Communist party includes finance. A host of possible reforms is being considered. These include offering higher interest rates for domestic savers backed up by deposit insurance for savings accounts and making China's currency, the renminbi, convertible. Unfettered movement of capital out of China is not going to happen overnight, but it could happen within five to 10 years. That's why George Osborne was in China last month seeking to make London the global hub for dealings in the renminbi. That is why fund managers, hedge funds, private equity firms and property specialists in Britain are licking their lips. China's leaders have encouraged speculation that radical change is afoot by talking about a "masterplan" for the economy. There have been signs that Beijing is prepared to sacrifice quantity for quality: accepting that growth needs to be slower but more sustainable. Although living standards have risen sharply, China's economic model is investment-intensive. There has been a rapid expansion of industrial capacity to provide goods for export. Heavy debts have been incurred in the process, particularly by local government. The sluggish recovery in the global economy that followed the financial crisis of 2007-08 means that demand for China's manufactured products is growing less quickly than it once was. Hence the feeling that the economy needs more of a domestic focus and that capital should be used less wastefully.

    China premier warns against loose money policies (Reuters) - China needs to sustain economic growth of 7.2 percent to ensure a stable job market, Premier Li Keqiang said as he warned the government against further expanding already loose money policies. In one of the few occasions when a top official has specified the minimum level of growth needed for employment, Li said calculations show China's economy must grow 7.2 percent annually to create 10 million jobs a year. That would cap the urban unemployment rate at around 4 percent, he said. "We want to stabilize economic growth because we need to guarantee employment essentially," Li was quoted by the Workers' Daily as saying on Monday. His remarks were made at a union meeting two weeks ago but were only published in full this week, just days before a pivotal Communist Party plenum to set policy opens. Yet even as authorities keep an eye on growth, Li sounded a warning on easy credit supply, which he said had topped 100 trillion yuan ($16.4 trillion) in the world's second-biggest economy. "Our outstanding M2 money supply has at the end of March exceeded 100 trillion yuan, and that is already twice the size of our gross domestic product (GDP)," Li was quoting as saying. "In other words, there is already a lot of money in the 'pool'; to print more money may lead to inflation." His comments echoed the government's hawkish stance on inflation, analysts said, and were separately affirmed on Tuesday by the central bank, which promised to keep policy prudent with appropriate fine-tuning as well as to "resolutely repress" property speculation 

    U.S. Banker to China: Hold Off on Those Reforms - With the Communist Party is poised to discuss economic strategy for the coming decade at a major conclave in Beijing starting Saturday, Mr. Newman has the following advice: Scratch some of the reforms being pushed for the financial sector.“China has done well with plain vanilla banking,” says Mr. Newman, who is now nonexecutive chairman of Promontory Financial Group China Ltd. in Hong Kong.Bank deposit insurance? Don’t bother. “Right now, we have implicit full deposit insurance, which works pretty well,” says the 71-year-old Mr. Newman. If deposits are guaranteed only up to a certain amount – 500,000 yuan ($82,000) is most likely, say banking officials—rich Chinese may pull their deposits from smaller institutions and put them in China’s Big Four state-owned banks.Why? Because they may figure that the government will never let any of those deposits take a loss.“Deposit insurance could lead to more concentration (of assets), not less,” he says. China’s largest state-owned banks favor the big state-owned companies that dominate the energy, transportation, electricity and other markets. Making them even more flush with cash could frustrate plans to diversify lending.  It’s also hard to know whether Chinese depositors will look at deposit insurance as a security blanket or as a sign that the government is willing to let depositors take a hit in a banking crisis. If it’s the latter, chaos could ensue, he warns.

    Meaningful Tax Reform in China? Don’t Hold Your Breath - Ahead of a key meeting of China’s Communist Party, pressure is building for tax changes that can help cash-strapped local governments struggling with a mountain of debt. The drumbeat for tax reform has intensified ahead of the gathering, known as the Third Plenum. The current fiscal system was established in 1994 through the efforts of then-Vice Premier Zhu Rongji to reverse a draining of funds and power from the central government to the provinces. Mr. Zhu helped push through a tax-sharing system that tilted the balance more toward Beijing. Critics say the system drives local governments to depend heavily on land sales to fund a range of projects from infrastructure development to real estate. That has contributed to higher property prices, stoking popular resentment. The system also prevents local governments from borrowing directly from banks, so they’ve set up numerous special financing vehicles to raise funds, creating high levels of debt—much of it hidden from an accurate accounting. That has raised alarm bells in Beijing, which is is expected to soon announce the results of an audit of local government borrowing. Government researchers estimate that local governments have some 20 trillion yuan ($3.3 trillion) of debt—about twice the level at the last audit in 2010, and about 38% of last year’s gross domestic product.

    Japan's Missing Wall of Money - The Bank of Japan announced an open-ended asset purchase program in January 2013 and an unexpectedly ramped-up version of the program was implemented in early April. Market commentary at that time suggested that flooding the economy with liquidity would lead to a “wall of money” flowing out of Japan in search of higher yields, affecting asset prices worldwide. So far, however, Japan’s wall of money remains missing in action, with no pickup in Japanese foreign investment since the April policy shift. Why is this? Here we explain that while economic theory does not offer clear guidance on how financial outflows might respond to the injection of cash from central bank asset purchases, it does point to an important constraint on the potential size. In particular, monetary expansion will not cause a surge in financial outflows unless it also induces a similar surge in capital flowing into the country.

    BOJ Minutes Show Ripples of Fed U-Turn on QE - Bank of Japan board members voiced concern over potential fallout from a shift in U.S. monetary policy at their own policy meeting in early October, showing how market volatility caused by the Federal Reserve’s surprise decision in September to maintain its bond-buying program has put Japanese officials on alert. The BOJ’s Oct. 3-4 policy meeting took place about two weeks after the Fed decided not to start pulling back on its $85-billion-a-month bond-buying program. The Fed’s stance rocked markets and — in an unnerving development for Japan’s exporters — stopped the dollar’s uptrend against the yen.“Some members” of the BOJ’s nine-person board said market participants now considered U.S. monetary policy “harder to predict,” according to meeting minutes released Wednesday. Those members added that “it is necessary to pay attention to the risk that the markets could again become highly volatile depending on the course of U.S. monetary policy.”“A few members” also noted that, while emerging economies had regained stability, they could suffer further capital outflows and market turmoil “if speculation about the direction of U.S. monetary policy heightened,” the minutes said. Weakness in emerging countries has been a major source of concern for Japanese officials because Japan’s economy will likely need even more support from exports if a sales-tax hike slated for next April hurts domestic consumer spending. Asia takes about 50% of all Japanese exports; only about 20% go to the U.S.

    Japan Growth Likely Slowed Sharply in Third Quarter - After two quarters of pacesetting growth among the world’s leading economies, Japan is likely to see a sharp slowdown in its expansion in the July-September period, as stalling exports and weaker consumer spending weigh on the economy. Gross domestic product likely expanded by 0.4% during the quarter from the previous one, or at an annualized pace of 1.7%, according to a median forecast of 12 economists surveyed by The Wall Street Journal. Preliminary GDP data for the quarter will be released Nov. 14. The estimate is less than half the annualized 3.8% increase in the April-June quarter and the 4.1% gain during the January-March period. During the first six months of the year, exports and personal spending surged with help from a weaker yen and stronger stock prices sparked by Prime Minister Shinzo Abe’s pro-growth policies. Japan’s growth in the first half was the fastest among the Group of Seven leading industrialized nations. The weakening of the yen came to a halt in the July-September period and volume-based exports dropped 2.4% during the quarter. Economists blamed the fall on decreased demand for cars from the U.S. amid rising housing-loan interest rates and from Asian nations hit by financial market speculation over the Federal Reserve’s plans to downsize its asset-buying program. The export data prompted the government to cut its view on exports in September and October. Considering Japan’s high reliance on overseas energy supplies, economists expect the net value of exports to drop for the first time in three quarters in July-September, adding that overseas demand is the biggest risk.

    Japan MOF: Central Govt Debt at Y1.011 Quadrillion at End of Sept - Japan's central-government debt continued to grow and stood at Y1.011 quadrillion as of the end of September, the Ministry of Finance said Friday. The tally increased from Y1.009 quadrillion at the end of June, when the total topped the quadrillion mark for the first time ever. The amount is more than twice the size of the nation's economy, which stood at Y475 trillion in 2012, making Japan by far the most indebted country among advanced economies. Outstanding debt of municipalities, around Y200 trillion, are not included in the latest MOF data

    The Global Corporatocracy is Almost Fully Operational - 2013 is proving to be a hectic year for corporate lobbyists and free trade advocates, as they frantically flit, like busy bees pollinating succulent orchids, from one global free trade conference to another. And at long last, it seems that their hard work appears to be paying off. In the last month alone world leaders from 12 countries, including the U.S., Australia, Japan, New Zealand and Mexico, pledged to sign the Trans-Pacific Partnership (TPP) by the end of the year. On the other side of the globe, meanwhile, Europe has signed a sweeping free trade agreement with Canada. And what’s more, despite all the furore over allegations of NSA and GCHQ spying on European national leaders, most EU member states are determined to ensure that the fallout from the scandal does not derail ongoing talks for a Transatlantic Trade and Investment Partnership (TTIP), a treaty that would effectively knit together countries with nearly half the world’s GDP into a massive free-trade zone. Indeed, the president of the European Parliament, Martin Schulz, has already suggested that it may be necessary to temporarily suspend negotiations — not out of concern for joining in partnership with a nation whose recent actions have betrayed every possible notion of mutual trust, but rather out of fear that continued negotiations in the current climate could feed anti-free trade sentiment: “If such events continue, and more news comes out, I fear that those who are against the free trade agreement in principle will become the majority,” said Schulz during last week’s EU summit. “My advice is to stop for a moment and discuss how we can avoid such a development.” Meanwhile, in the Asia-Pacific region the TPP is forecast to open up massive new opportunities for businesses both large and small, as new trade networks are forged between some of the world’s fastest growing economies.

    Trans-Pacific Partnership: “We Will Not Obey”; Building a Global Resistance Movement - The Obama administration has made it a priority to have the Trans-Pacific Partnership (TPP) completed by the end of the year. The TPP is the largest trade agreement negotiated since the World Trade Organization (WTO). It covers 12 countries so far and includes provisions that reach beyond issues of trade. The full contents of the TPP are unknown because it has been negotiated with unprecedented secrecy; however, it is clear from what has been revealed that the TPP gives transnational corporations the power to alter our laws down to the local level to enhance and protect their profits.To pass the TPP, Obama is seeking Fast Track Trade Promotion Authority from Congress, which would give the president the ability to negotiate and sign the agreement before it is presented to Congress for a limited debate and an up-or-down vote without amendments. Fast Track, which has been used to pass other undesirable trade deals like the WTO and NAFTA, would prohibit a transparent and democratic process. Without Fast Track, it would be more difficult to pass the TPP. At present, with the help of grass-roots pressure, momentum is growing in Congress to stop Fast Track. Many elected Republicans and Democrats are signing on to letters stating that they refuse to give up their constitutional responsibility to regulate trade between nations. However, as corporate lobbyists descend on Congress, that momentum could change. To ensure that Fast Track and the Trans-Pacific Partnership do not become law, we need to continue to build grass-roots pressure. In addition to contacting Congress, activists are organizing to pass local laws saying their community will not obey the TPP because it is being passed in secrecy, without their consent and taking away their ability to legislate for the benefit of their community. And activists are strengthening their ties with the global community by coordinating efforts to stop the TPP and other toxic agreements such as the WTO and the new Trans-Atlantic Trade and Investment Partnership, known as TAFTA, which started being negotiated in July.

    Harry Shearer interviews Yves Smith: Corporate Pillage Part 1 – secret “worst of both worlds” trade agreement negotiations -- Yves Smith of Naked Capitalism spent the hour with Harry Shearer on Sunday's Le Show. In the first half of the program they discussed the new international trade agreements being worked up in secret. Corporations are invited; guess what, congresspeople and you and I are not. In the second half, she takes apart JP Morgan Chase's steal of a deal $13 billion settlement with the DOJ. Yves blogs about the interview here, Your Humble Blogger Discusses the Pending Trade Deals and JP Morgan on Le Show! Listen to the podcast here. Transcript for the first half below fold.

    NYT Endorses Imaginary TPP Deal – Dean Baker - The Trans-Pacific Partnership (TPP) is a trade deal that is being negotiated completely in secret. The main actors at the table are large corporate interests like Wall Street banks, multinational drug companies, and oil and gas companies. This might lead one to think that the end product will be an agreement that furthers the upward redistribution of income rather than benefits the bulk of the population. That seems especially likely since this is a "next generation" trade agreement that is primarily about regulations, not reducing traditional trade barriers like tariffs and quotas.  The result is likely to be a deal where corporations will use the trade agreement to block restrictions on their behavior that might otherwise be imposed by democratically elected governments. For example, the financial industry might use the deal to prohibit Dodd-Frank type restrictions that prevent the sort of abuses that led to the financial crisis. The oil and gas industries might use the deal to prohibit environmental restrictions on fracking. And the pharmaceutical industry might push for stronger patent-type protections. These will raise the price of drugs (like a tax) and slow economic growth. Bizarrely, the NYT editorialized in favor of the the TPP, concluding its piece: "A good agreement would lower duties and trade barriers on most products and services, strengthen labor and environmental protections, limit the ability of governments to tilt the playing field in favor of state-owned firms and balance the interests of consumers and creators of intellectual property. Such a deal will not only help individual countries but set an example for global trade talks." Yes, boys and girls, Goldman Sachs, Exxon-Mobil and Pfizer will put together a deal that does all these things. This is serious? 

    Employment Effects of International Trade  - In the past two decades, China's manufacturing exports have grown dramatically, and U.S. imports from China have surged. While there are many reports of plant closures and employment declines in sectors where import competition from China and elsewhere has been strongest, there is little evidence on the long-run effect on workers. In Trade Adjustment: Worker Level Evidence (NBER Working Paper No. 19226), David Autor, et al examine the impact of exposure to rising trade competition from China on the employment and earnings trajectory of U.S. workers between 1992 and 2007. They find that workers bear substantial costs as a result of the "shock" of rising import competition. The adjustment to such shocks is highly uneven across workers, and varies according to their previous conditions of employment. The difference between a manufacturing worker at the 75th percentile of industry trade exposure and one at the 25th percentile of exposure amounted to reduced earnings equal to 46% of initial yearly income. Trade exposure also increased job churning across firms, industries, and sectors. Workers in sectors highly exposed to trade with China spent less time working for their initial employers, less time in their initial two-digit manufacturing industries, more time working elsewhere in manufacturing, and more time working outside of manufacturing.  Earnings losses are larger for individuals with low initial wages, low initial tenure, low attachment to the labor force, and for those employed at large firms with low wage levels. Losses for workers with high initial earnings are generally quite modest.

    With Western Demand Weak, Asia Relies More on Itself - Economic strength in the developed world traditionally has meant dollar signs for Asian exporters – but this time around, the recovery in the West is hardly being felt on Asian shores. Perhaps the pass-through is just delayed, and the resurgence in the West will make itself felt in Asia later rather than sooner. But some economists think something fundamental is changing in the relationship between East and West, with Asia depending more on its own demand for growth. The portion of trade that stays within Asia has jumped from about 45% in 1990 to about 55% now, according to Jayant Menon, lead economist in the Asian Development Bank’s Office of Regional Economic Integration. Harder to measure is trade in services, but that’s also growing strongly, he said. “It has been quite a remarkable shift over the past couple of decades,” Mr. Menon said. Much of the intra-Asian trade is still in parts and components that are destined for assembly and ultimate export to the West. But as middle classes surge in places like Indonesia, India and ChIna, “slowly but surely that pattern is changing toward an increasing share of final goods,” That’s likely to be even more pronounced now with the December 2015 launch of the Asean Economic Community, a common market modeled on the European Union.

    Australian Central Bank Faces Dilemma on Dollar - Australia’s central bankers find themselves between a rock and a hard place. They want a weaker Australian dollar to help boost manufacturing exports at a time when mining exports are moderating. But they don’t want to ease monetary policy amid signs that eight rate cuts since late 2011 are finally starting to take hold. Data this week showed retail sales were surprisingly strong. Growing signs of a housing bubble add to the sense of caution. Inflation also came in ahead of expectations last quarter. That’s why the Reserve Bank of Australia on Tuesday decided to keep rates stable at 2.5%. The market is starting to believe the bank might be done cutting. Without lower rates, though, the central bank is left to jawboning the Australian currency lower.Australia’s economy has boomed for a decade on sales of iron ore and coal to China. As mining profits and investment fall, Canberra wants to sell more food, construction materials and manufactured goods abroad. It sees this as crucial to boost current growth rates of 2.5% back to the longer-term average of 4%. Despite the recent good news, business hiring and investment remain weak and the outlook clouded.

    Indian Inflation: Out of Control? While some harp on about the growing dangers of yet another housing bubble in the western world, there are other more important things perhaps that are going on in other countries in the world. But, they are of little interest since we are not directly concerned by them. How is it that we only care about what’s actually happening in the back yard while someone round the block might be doing something or on the receiving end of something pretty bad and yet we don’t give a damn about what happens to them? While we are concerned with our bubbles, there are people in India that are suffering from the rise in prices that is drastically changing the way they live. Over the past year inflation has been driven up by food prices. In September alone food prices were at their highest level for the past seven months and it seems that India is now going through the worst financial crisis that it has ever experienced since 1991.

    • The Indian wholesale price index (WPI) rose by 6.46% in September.
    • This was largely due to the fact that food prices have increased beyond control.
    • Since the start of this year onions have increased by 322%, for example.
    • Food prices have increased by an annual rate of 18.4% so far according to data released by the Indian government on Monday this week.

    India, still definitely not China, but investment showing at least some flutters of life -- A few charts and some commentary plucked from a rather bullish note on India from Goldman’s Asia Pacific team: The decline in new project starts in industrial and infrastructure projects seem to have halted in 2QFY14, although project starts still remain at low levels. We are also seeing early signs that fewer new projects have stalled – an indication that we may be close to a trough in the investment cycle given recent policy initiatives from the government and new approvals coming through in power and road projects. In the manufacturing sector, the production of the core industries related to infrastructure (which includes Coal, Oil and natural gas, Fertilizers, Steel, Cement and Electricity) has picked up and the raw materials inventory to sales ratio (based on OBICUS survey of more than 1000 manufacturing companies) is turning up again which are generally lead indicators for pick-up in the investment demand. On the infrastructure front, some large-scale government projects are now progressing well, post initial delay. The Dedicated Freight Corridor (DFC), which aims at easing freight traffic bottlenecks, has acquired substantial land tracts and environmental clearances are almost completed. The project has already secured international funding and execution appears on-track, with ordering for some phases already underway. The Delhi-Mumbai Industrial Corridor (DMIC) project, which will consist of integrated Investment Regions (IRs) and Industrial Areas (IAs) within both sides of DFC between Delhi and Mumbai, has already seen implementation on track in parts of Dholera (Gujarat) for Industrial areas and Haryana for roadways (Exhibit 10). We expect more infrastructure contracts to be awarded from these projects over the course of next year.

    India launches spacecraft to Mars - India has successfully launched a spacecraft to the Red Planet - with the aim of becoming the fourth space agency to reach Mars. The Mars Orbiter Mission took off at 09:08 GMT from the Satish Dhawan Space Centre on the country's east coast. The head of India's space agency told the BBC the mission would demonstrate the technological capability to reach Mars orbit and carry out experiments. The spacecraft is set to travel for 300 days, reaching Mars orbit in 2014. If the satellite orbits the Red Planet, India's space agency will become the fourth in the world after those of the US, Russia and Europe to undertake a successful Mars mission.

    Gender inequality: Making room for girls | The Economist --IN THIS week's print edition we look at an important issue in development economics: how to reduce the gap between the number of girls and boys being educated in poor countries. Economists see reducing sexual inequality in education as a vital part of promoting development. The failure to educate girls limits economic growth in the developing world by wasting human capital. As a result, the UN set itself the target of eliminating gender disparity in education at all levels by 2015, as one of its Millennium Development Goals. Although places like China, Bangladesh and Indonesia look likely to achieve the target, Africa, in particular, will not. For every 100 boys in secondary school on the continent in 2010, there were only 82 girls. The most common response is to channel more money to girls’ education. UN schemes finance school places for girls in 15 sub-Saharan countries. NGOs have got involved too. Looking at recently-published UN statistics on gender inequality in education, one observes that the overall picture has improved dramatically over the last decade, but progress has not been even (see chart). Although the developing world on average looks likely to hit the UN’s gender-inequality target, many parts of Africa are lagging behind. While progress is being made in sub-Saharan Africa in primary education, gender inequality is in fact widening among older children. The ratio of girls enrolled in primary school rose from 85 to 93 per 100 boys between 1999 and 2010, whereas it fell from 83 to 82 and from 67 to 63 at the secondary and tertiary levels.

    How’s Life? Could be Better, Report Says - Life is better than it was 20 years ago but still far from good in many countries. According to “How’s Life?,” a report out Tuesday from the Organisation for Economic Co-operation and Development, the financial crisis of 2008 slowed some of that uneven progress, particularly in parts of the euro zone.While no country earned top marks in all areas, the top 20% of performers were: Australia, Canada, Denmark, Norway, Sweden, Switzerland and the U.S.The lowest 20% were: Chile, Estonia, Greece, Hungary, Mexico, Portugal and Turkey.The other 20 countries surveyed — including France, Germany, Japan, Spain and the United Kingdom — fell in between the two groups.The OECD gauged nations not just by economic benchmarks such as unemployment rates or gross domestic product, but by official and non-official data in 11 dimensions of well-being, such as housing, income, social connections, health, personal security and work-life balance. The survey period ran through last year, and turned up a number of “on the one hand-on the other” conclusions. The gender pay gap appears to be narrowing, the researchers found, but still exists. While women earn less than men and hold fewer top jobs in companies, they live longer and are getting better educated.

    Argentine Inflation Saga Approaches Critical Moment - Argentina's time is up. In February, the IMF censured Argentina on account of its notoriously dubious inflation statistics. Under terms of the censure, Argentina was given until September 29, 2013, to improve the flawed data. The deadline has passed, and IMF Chief Christine Lagarde will report to the IMF Executive Board by November 13 on Argentina's progress (or, likely, lack thereof.) Lagarde's impending report follows a long and nearly unbelievable saga (see timeline at the end of this post.) The gist of the matter is that officially-reported inflation has been in the vicinity of 10% for the past few years, while a variety of private estimates place the true value at 25% or higher. Oh, and the independent economists who publish these private estimates are threatened with criminal prosecution. This September, economist Orlando Ferreres published his estimate that June monthly inflation was 1.9%, compared to the official estimate of 0.8% (with compounding, that's a big difference) and could face a two-year prison sentence. I searched for Ferreres' website on November 3, and it appears to have been hacked (see image below.) I could not find Ferreres' independent inflation estimates on his site; only official estimates appear.

    Global Central Banks Seek Shelter From Fed Tapering -- South Africa’s central bank is entering new territory, diversifying its foreign-exchange reserves by buying assets denominated in currencies such as the South Korean won and Australian and New Zealand dollars. Daniel Mminele, deputy governor of the South African Reserve Bank, said this week that the bank is “acutely aware of the risks” of the U.S. Federal Reserve winding down its monetary stimulus and had decided to protect itself against the higher U.S. Treasury yields that are expected to result. The South African central bank isn’t alone. Others are seeking to defend themselves against exposure to the U.S. dollar and euro, amid economic uncertainty and the Fed’s intention to begin winding down its stimulus, which is expected either later this year or early next year. Yields and prices move in opposite directions. Foreign holdings of Treasurys fell by US$128 billion over five consecutive months to August, with Asian countries shedding more than US$70 billion in U.S. government bonds year to date, according to the latest data from the U.S. Treasury Department. Analysts say they expect this trend to continue.

    Fed’s Powell: Eventual Pullback Shouldn’t Hurt Emerging-Market Economies - When the Federal Reserve begins pulling back on its unconventional policies, it is likely to affect capital flows to emerging market nations, but there is no reason that should hurt the economies of those countries, a Fed governor said Monday. Emerging-market countries as a whole are much more resilient than they were in prior decades, Fed governor Jerome Powell said in a speech at the San Francisco Fed as part of a conference. The degree of resilience varies by country, but overall they’ve embraced more flexible exchange rates and improved their banking systems, among other factors that make them better able to deal with volatile capital flows, he said.  Moreover, the advanced economies should be on stronger footing when they start to raise interest rates, which will cushion the blow for the world, he said. “Tightening will in all likelihood occur in the contest of a more firmly established economic recovery in the United States so that any adverse effects on [emerging-market] financial conditions should be buffered by the beneficial effects of higher external demand,” Mr. Powell said in prepared remarks. The impact of Fed policy on emerging-market economies became a major topic over the summer. Talk from Fed officials that they could start winding down the Fed’s $85 billion-per-month bond-buying program led investors who had plowed money into emerging markets in recent years to start pulling it out at the prospect of rising U.S. rates and a strengthening U.S. economy. Emerging-market economies have tools they can use to manage any negative impact of these flows and the experience of the summer should encourage them to do more to bolster their resiliency, Mr. Powell said.

    This Transatlantic Trade Deal is a Full-Frontal Assault on Democracy - Brussels has kept quiet about a treaty that would let rapacious companies subvert our laws, rights and national sovereignty. Remember that referendum about whether we should create a single market with the United States? You know, the one that asked whether corporations should have the power to strike down our laws? No, I don't either. Mind you, I spent 10 minutes looking for my watch the other day before I realised I was wearing it. Forgetting about the referendum is another sign of ageing. Because there must have been one, mustn't there? After all that agonising over whether or not we should stay in the European Union, the government wouldn't cede our sovereignty to some shadowy, undemocratic body without consulting us. Would it? The purpose of the Transatlantic Trade and Investment Partnership is to remove the regulatory differences between the US and European nations. I mentioned it a couple of weeks ago. But I left out the most important issue: the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. Yet the defenders of our sovereignty say nothing. The mechanism through which this is achieved is known as investor-state dispute settlement. It's already being used in many parts of the world to kill regulations protecting people and the living planet. The Australian government, after massive debates in and out of parliament, decided that cigarettes should be sold in plain packets, marked only with shocking health warnings. The decision was validated by the Australian supreme court. But, using a trade agreement Australia struck with Hong Kong, the tobacco company Philip Morris has asked an offshore tribunal to award it a vast sum in compensation for the loss of what it calls its intellectual property.

    Kerry urges Europe: don't let NSA surveillance concerns thwart trade talks - John Kerry, the US secretary of state, sought to salvage forthcoming trade negotiations with the European Union amid growing signs that the Obama administration will act to stem some of the criticism of the National Security Agency's surveillance activities. Speaking in Warsaw on Tuesday after talks with Poland's foreign minister, which included discussions about the NSA, Kerry said he understood why there were concerns in Europe, but insisted that a review of its programs would establish "the right balance". The second round of negotiations over the ambitious Transatlantic Trade and Investment Partnership (TTIP) begin in Brussels next Monday, despite calls in Europe to suspend talks after a series of disclosures about US surveillance of European leaders. The revelations, which included the disclosure that the NSA monitored the cell phone of the German chancellor, Angela Merkel, have caused a diplomatic rift that countries on both sides of the Atlantic are now trying to mend. "The Transatlantic Trade Partnership is really separate from and different from any other issues people may have on their minds. This is about jobs. It's about the economy," Kerry said, adding: "Now, that should not be confused with whatever legitimate questions exist with respect to NSA or other activities."

    Rising Corporate Debt May Be Reaching Dangerous Levels - Corporate debt is rising to potentially dangerous levels in Europe and some emerging markets, according to a new global banking group study. While many firms across the globe have used years of low-interest borrowing from central banks to bolster their balance sheets, some companies have gone deeper in debt in the hopes of tiding their finances over until better times. Others have borrowed against growth prospects.They could be a deadly strategies.“After six years of abundant liquidity and near-zero policy rates, additional easing of monetary conditions could increasingly lead to financial distortions and pockets of bubbles in asset markets,” the Institute of International Finance said in its November Capital Markets Monitor. (The full report will be made public at on November 8.) Some euro zone countries could come under market pressure again as bad corporate balance sheets weigh on banks that also hold risky sovereign debt. And emerging market economies with weak economic fundamentals may face renewed turbulence as investors rethink their portfolios.The increase is likely largely driven by those firms with weaker balance sheets and anemic profitability, the global banking group said. The IIF represents more than 450 of the world’s largest financial firms  High-yield corporate issuances in Europe — loans to the riskiest firms — are already 50% higher this year than last-year’s levels.“Against the backdrop of recession, sluggish recovery and low inflation, many highly indebted corporate borrowers may already be struggling to service their debt,” the IIF said.

    Those Depressing Germans, by Paul Krugman - German officials are furious at America, and not just because of the business about Angela Merkel’s cellphone. What has them enraged now is one (long) paragraph in a U.S. Treasury report on foreign economic and currency policies. In that paragraph Treasury argues that Germany’s huge surplus on current account — a broad measure of the trade balance — is harmful, creating “a deflationary bias for the euro area, as well as for the world economy.”  The Germans angrily pronounced this argument “incomprehensible.” “There are no imbalances in Germany which require a correction of our growth-friendly economic and fiscal policy,” declared a spokesman for the nation’s finance ministry.  But Treasury was right, and the German reaction was disturbing. For one thing, it was an indicator of the continuing refusal of policy makers in Germany, in Europe ... and around the world to face up to the nature of our economic problems. For another, it demonstrated Germany’s unfortunate tendency to respond to any criticism of its economic policies with cries of victimization.

    Defending Germany - Paul Krugman - OK, I’ve just written a couple of posts talking about the harm German policy is doing. But this is dumb and destructive:Berlin’s attention to its own domestic priorities seems likely to stir resentment that the medicine of austerity prescribed by Berlin abroad is administered with less zeal at home. Analysts say the contrast is angering voters throughout Europe, where populist and anti-European Union parties are steadily gaining strength outside Germany. No, no, no! This is the euro equivalent of “American families are having to tighten its belts, so the government should tighten its belt too.” We want Germany to spend more, so that it provides a market for other countries and stops adding so much to the world’s excess savings. The last thing European debtors, or anyone else for that matter, should demand is that Germany put on a hair shirt. So please, Germany, live it up.

    The real problem with German macroeconomic policy - Paul Krugman has been laying into Germany in the past few days (1, 2, 3, 4, 5, 6). I think it might be interesting to look at two possible defences for the German position. The first is that they are doing what any government would do, which is act in their national interest. The second is that, for from being at the centre of the Eurozone’s (EZ) problems, they have been holding it together. Take the national interest argument first. If the EZ really had an EZ government that took decisions in the overall EZ interest, then given the problems with ECB monetary policy (whether self-inflicted or otherwise), EZ fiscal policy should be expansionary - or at least not contractionary. Given the needs of periphery countries, this implies fiscal expansion in Germany. The problem is that this appears not to be in the German national interest, because growth has been relatively healthy in German, unemployment is low and inflation not that low. Here are the latest OECD forecasts (and outturns) from the September OECD Economic Outlook. While this performance is nothing to write home about, it is also not enough to overcome the longstanding distrust in Germany of countercyclical fiscal policy. Why risk inflation going above 2%, when unemployment is less than half the EZ average?

    Why Germany is a weight on the world - The criticisms that hurt are those one suspects might be fair. This might explain the outrage from Berlin last week over the criticism by the US Treasury of Germany’s huge and vaunted trade surplus. But the Treasury is to be commended for stating what Germany’s partners dare not: “Germany has maintained a large current account surplus throughout the euro area financial crisis.” This “hampered rebalancing” for other eurozone countries and created “a deflationary bias for the euro area, as well as for the world economy”. The International Monetary Fund has expressed similar worries. The German finance ministry responded that its current account surplus was “no cause for concern, neither for Germany, nor for the eurozone, or the global economy”. Indeed, a spokesman stated that the country “contributes significantly to global growth through exports and the import of components for finished products”. This reaction is as predictable as it is wrong. The surplus, forecast by the IMF at $215bn this year (virtually the same as China’s) is indeed a big issue, above all for the future of the eurozone.

    Complaints about Export Surplus of Germany Unfounded - SPIEGEL : Marco Buti, the most senior member of EU Monetary Affairs Commissioner Olli Rehn's staff, isn't exactly viewed as a friend of Germany in Brussels. The chief economist of the European Commission, a native of Italy, has a tendency to blame many euro-zone ills on the nature and effects of German economic policy.Buti is especially irked by the imbalances within the euro zone. In his view or the world, countries like Germany are partly responsible for the turbulence in southern countries because they flood them with goods. Buti will have yet another opportunity to call the Germans to order next week when, on Nov. 15, the European Commission releases its early warning report. The report identifies those countries whose deficit or surplus is particularly large in relation to economic output. Germany will be among those at the top of the list. If the European Commission sees this as a problem, it can subject the country to an "in-depth analysis," which could be followed by a reprimand. The office in charge of the procedure is Buti's Directorate-General for Economic and Financial Affairs. An old debate is returning with a vengeance. The German government has been pilloried for years because Germany's exports allegedly disrupt global economic peace. The complaint was voiced by Christine Lagarde, then France's finance minister but now head of the International Monetary Fund (IMF), as well as a long line of US Treasury secretaries. Current Treasury Secretary Jacob Lew took the same line only last week. According to a report from his department, Germany was identified as a top threat, even ahead of China.

    Germany’s Potential “Grand Coalition” – Bad for Germany and Europe -- In Germany, Angela Merkel’s Christian Democratic Party and its sister party the Bavarian Christian Social Union are inexorably heading for a “grand coalition” with the Social Democrats. This would give the coalition well over a two-thirds majority in both houses of parliament, making constitutional changes a mere formality. What does this mean for Germany and what will its effect be upon the European Union and a resolution of its current economic crisis?  This grand coalition does not bode well for the average German. One only needs look back at the last grand coalition formed in 2005. What should have been a compromise between Merkel’s centre-right Christian Democrat bloc and purportedly centre-left Social Democrats ended up an incontrovertible neoliberal program unfavorable to most cititzens. The best example was the two percent increase in the sales tax in the Christian Democrat bloc’s platform, the most contentious issue of the 2005 election. The Social Democrats castigated this increment, which would principally penalize wage earners, as the “Merkel Tax”. As the grand coalition was formalized, it was announced that the sales tax would not be increased by two percent, as sought by Merkel, but, astonishingly, three percent. Other changes initiated by the past grand coalition were an rise in the retirement age by two years, and a reduction of corporate and inheritance taxes, to name a few.

    Debt crisis has left Germany vulnerable - During her successful re-election campaign, Chancellor Angela Merkel’s message was that Germans were living in a prosperous, recession-proof economy and the eurozone problems were contained. But Germany’s economic power and financial strength is overstated. Germany remains dependent on its neighbours, with 69 per cent of total exports going to European countries, including 57 per cent to the member states of the European Union. In 2012, Germany ran a trade deficit of €27bn with Russia, Libya and Norway, mainly for energy imports. Germany also had trade deficits with Japan (€4.7bn) and China (€11.7bn). In contrast, Germany had a trade surplus with the eurozone (France, Italy, Spain, Greece, Portugal, Cyprus and Ireland) of €54.6bn. Continued weakness in these troubled countries will affect German economic prospects. High energy prices and increasing stresses in emerging markets will exacerbate its problems. Eurozone members remain committed to avoiding the unknown risks of a default and departure of countries from the euro. Governments in the at-risk economies are unlikely to meet agreed budget deficit or debt level targets. Banks will face rising bad debt losses and require capital infusions. For both weaker sovereigns and banks, access to financial markets will remain restricted. Cost of commercial funding will remain above affordable levels, meaning that assistance will be needed.

    The ECB confronts the zero lower bound - The sharp decline in inflation in the euro area to only 0.7 per cent in October has focused attention squarely on the monetary strategy of the ECB, ahead of its policy meeting next Thursday. In 2012, the Governing Council was willing to introduce very unconventional measures in order to keep the single currency together, dampen crises in sovereign debt and repair the fragmentation of interest rates between member states. Most people now concede that, without these measures, the eurozone would have fallen apart.The startling success of this action has tended to shift attention away from more mundane matters, such as the overall stance of monetary conditions for the euro area as a whole. But the recent decline in inflation has raised serious questions about whether the monetary stance is anywhere near appropriate for an economy in such a depressed state. This is problematic for the ECB, since it has already fired almost all of the conventional monetary ammunition available to it. And it has never followed the example of other major central banks in considering that quantitative easing is needed to ease policy at the zero lower bound for interest rates. It may soon have to face up to this issue.

    Macro Alert: Europe heads towards disinflation - During the past few weeks every policymaker in the world has proclaimed stability and improvement. Now, one day of data ruins this illusion. Eurozone CPI 'collapsed' in October from 1.0 percent to 0.7 percent (versus 1.1 percent expected!). Europe now has less inflation than Japan (see chart below). There's no doubt disinflation is becoming the main theme. As such, it is important to remember that from a policymaker's perspective disinflation is the worst of all evils in economics.The key theme for a while has been that US 10-year nominal rates and the US yield curve overall dictates all markets. Since early September I have advocated being into long maturity US, German and Danish bonds and my approach is now supported by a disinflation theme which could ruin the 'year-end rally' party in equities. The simplest way to define the present market is: It’s a race between the perceived further monetary stimulus from global central banks and the consequent repricing of yield curves and nominal rates relative to poorer data, especially concerning inflation but also housing and employment.

    Europe's Inflation Problem - Paul Krugman - It’s too low. There are two reasons moderate inflation is actually a good thing for modern economies — one involving demand, one involving supply.On the demand side, inflation reduces the problem of the zero lower bound: nominal interest rates can’t go negative, but real rates can to the extent that modest inflation is embedded in expectations.On the supply side, inflation reduces the problem of downward nominal wage rigidity: people are very reluctant to demand or accept actual wage cuts, which becomes a serious constraint if the relative wages of large groups of workers “need” to fall.Both problems are very much present in the United States, but they’re even worse in the euro area, where fiscal policy has been highly contractionary thanks to savage forced austerity in the periphery and precautionary austerity in the core, so that monetary policy is the only game in town; and where those peripheral economies also need large internal devaluation. Given this, Europe’s latest inflation numbers (pdf) are just disastrous: core inflation over the past year of just 0.8 percent. Alas, European officials think that because the ECB has calmed financial markets and some countries are showing slight growth the crisis is over.

    How I learned to stop worrying and love (eurozone) deflation? - Okay, so it’s not the first time we’ve heard a positive spin on deflation. Who can forget the famous last words of Deflation Draghi in June this year? Well, I am not sure I get the point, but I think I get it. First, the fact that inflation is low is not, by itself, bad; with low inflation, you can buy more stuff.  A view that was definitely not echoed by all economists in the field. And yet, there’s some evidence to suggest that the “if you can’t beat it, learn how to love it” philosophy may be spreading in the eurozone. For example, consider this from Capital Economics’ Jonathan Loynes on Monday: Even if the euro-zone does face deflation, it might be argued that this is not a disastrous prospect. Provided that it is expected to be temporary, as in 2009, the ECB can claim that it is still acting within its mandate to keep inflation “below, but close to, 2% over the medium term”. Meanwhile, the potentially beneficial effects on real incomes and spending power could feasibly help the nascent economic recovery to broaden into the all-important household sector. Deflation could also help the euro-zone to regain price competitiveness against other parts of the world, as well as helping to reduce imbalances inside the currency union if the biggest price falls come in the periphery.So perhaps it is time to sit back and embrace deflation, after all? Well actually no. Loynes may have been tempted to go over to the D-side, but ultimately he understands it’s a dangerously naive view: For a start, there were few indications that 2009’s deflation had any such positive economic effects – indeed, Chart 2 shows that household spending growth slowed as inflation turned negative.

    Worry about the euro, not the European Union - Last November 1 gave us a glimpse of the biggest danger facing the eurozone in the next decade: a period of sustained deflation. Eurozone core inflation – without energy prices and other volatile items – tumbled in October to an estimated annual rate of 0.8 per cent. I would hope the European Central Bank would cut interest rates further this week. But I doubt even a marginally negative interest rate would avert a slide into deflation. Its deep cause lies in the way the eurozone responds to its debt crisis – through austerity and falling real wages in the periphery and a lack of adjustment in the north. The existential danger to the euro is no longer a speculative attack, a bank run or the rise of extremist parties, but sheer exhaustion. Benoît Coeuré, a member of the ECB’s executive board, warned last week that the eurozone might suffer a Japanese-style lost decade. But at least Japan maintained near full employment. The eurozone faces a far worse prospect: a lost generation.

    Pressure mounts on Draghi following eurozone forecasts - Pressure mounted on Mario Draghi, the European Central Bank president, to cut eurozone interest rates after Brussels on Tuesday revised its economic forecasts to show more tepid growth in the single currency area next year and falling inflation until 2015. Although the revisions were mild – the European Commission said the eurozone would expand an anaemic 1.1 per cent next year, down from a projected 1.2 per cent forecast in the spring and 1.4 per cent estimated at the start of the year – they come amid a growing amount of data that some analysts believe heighten the risk of deflation. Olli Rehn, the commission’s economic chief, acknowledged that while inflation forecasts were dropping, from a projected 1.5 per cent next year to 1.4 per cent in 2015, midterm inflation projections remained “anchored in the positive territory”, making any deflation fears overstated. “Although there is a lot of slack in the economy . . . the risk of deflation seems remote at the current juncture,” Mr Rehn said. “The ECB stands ready to act by changing the rates or injecting more liquidity in case downward risks to inflation were to materialise.” Mr Rehn said economic turbulence outside the EU, including the US government’s ongoing budget brinkmanship, was combining with continued demands on highly leveraged governments to pay down sovereign debt to further weaken growth. Among the countries that saw the biggest reductions in growth projections for 2014 were France – down from a 1.1 per cent estimate in the spring to just 0.9 per cent in the new forecast – and Spain, which went from a spring forecast of 0.9 per cent to 0.5 per cent in Tuesday’s release.

    The European Central Bank’s Inflation Conundrum -— The European Central Bank will meet on Thursday under renewed pressure to do more to stimulate the Continent’s sluggish economies, as evidence grows that the recovery is failing to pick up speed and that inflation has fallen so low as to become worrisome.  Mario Draghi, the president of the central bank, has already used a mix of threats, promises and cheap money to avoid a euro zone breakup and to help the most financially troubled governments get access to the borrowing they need. Now a growing chorus is hoping the central bank will signal a willingness to step in again. This time, those advocating action want the central bank to use its power over the euro currency to drive up inflation, which is at such low levels that some economists believe it signals the possibility of deflation, or a decline in prices and wages that can become a vicious circle of economic atrophy. But talk of deflation is an issue that deeply divides economists, some of whom see the threat as overblown and others who fear that the central bank is not taking it seriously enough. Those who are worried point to an unexpectedly sharp drop in inflation last month as a warning of abysmally weak demand and a sign that the euro zone could be headed for years of stagnation or even depression. Those who are more optimistic see low inflation as a sign of stability and evidence that Europe’s troubled southern periphery countries, like Spain and Greece, are regaining their ability to compete on price in world markets.

    North Atlantic Fiscal Policy - Paul Krugman - Europe doesn’t have a central government, which caused debt crises in troubled nations and forced harsh austerity. On the other hand, the US has a lot of budget-constrained state and local governments, plus political paralysis. Still, there is something of a contrast in fiscal policy, and I thought it might be useful to put it in one picture. This picture abstracts from the very divergent fates of different parts of Europe; it also uses the IMF estimates of the structural budget balance, which have problems (although not as bad as those of the European Commission).The US did substantial stimulus in 2009-10 (although not, I’d argue, nearly as much as these numbers suggest), but then began withdrawing it rapidly despite still being in a liquidity trap. At this point fiscal policy is only modestly more expansionary than it was before the crisis, which is a big policy mistake.But Europe is far worse. It, too, is in a liquidity trap, with the extra problems of severe adjustment needed in the periphery, made worse by a weak economy and excessively low inflation. Yet aggregate fiscal policy is clearly tighter than it was before the crisis.  And that, ladies and gentlemen, is why European had a double-dip recession, still has incredibly high unemployment, and is in general in such a mess.

    Blackstone and Goldman Come to Spain’s Rescue, Sort Of - Over the last two years, private equity firms, hedge funds and real estate investment trusts have bought, renovated and rented out tens of thousands of foreclosed properties in places such as Atlanta, Phoenix and California’s Inland Empire. The strategy has been extraordinarily profitable, which explains why, according to Bloomberg News, Blackstone, Goldman Sachs and others are taking it on the road to Spain. While the article does an excellent job of assessing the upside and risks for the institutional buyers, it's also worth looking at the significance this trend might have for Spain's economy, consumers and banks. Such investment should support asset values, help people with bad credit find housing and clean up the balance sheets of wounded lenders. After all, in U.S. markets, this investment has boosted home values for everyone who lives in the metro areas and has smoothed the transition away from excessive home ownership to rentership.  About 83 percent of Spaniards owned homes in 2008, according to the European Central Bank’s recent survey of household finances. Despite the brutal recession and banking crisis, many of those people probably still do -- more than two-thirds of Spaniards had no mortgage debt at all in 2008 -- but their assets are now worth far less: House prices have fallen by about 40 percent since the peak in 2007. Investor buying should therefore boost the net worth of many people suffering from years of recession and brutally high unemployment.

    Bank of Spain "Discovers" €20.50 Billion in Hidden Non-Performing Loans; Bank of Spain Translated - Via translation, El Economista reports the Bank of Spain Discovers €20.50 Billion Hidden Delinquencies. Emphasis on the word "discovers" not added.  Non-performing loans of Spanish banks to the end of September totaled €92.224 billion euros, 29% more than the €71.660 billion according to preliminary data included in the last Bulletin Financial Bank of Spain. The Bank of Spain urged banks to review loan portfolios before the September 30 deadline. [Mish note: Once again, emphasis is not added, this time in bold] The document published today reveals that all segments of activity shows the same pattern as before. In general, institutions have shown a high recognition of credit risk deterioration.  Late payments in June rose to 11.9%, from 10% the previous year, and thereafter continued to rise, reaching 12% in August. The same report notes that Spanish banks have a loss absorption capacity that exceeds €28.600 billion expected in the worst case scenario described by the Bank of Spain until 2015.

    Spain faces staggering losses as it accepts the reality of the housing bust - Spain is biting the bullet and starting to recognize the staggering level of losses associated with its housing bust. Fitch Ratings analysts who watch the market for Spanish mortgage bonds—packages of home loans that are sold off to investors—say financial institutions are starting to unload repossessed properties at a faster pace. During the first half of the year, 44% of repossessed properties had been sold, compared 31% at the end of last year. Now bear in mind there are very few people in Spain who even want to think about buying a house. (Spain’s economy is in horrific shape. Unemployment is perched at more than 26%, and about 4.8 million people are jobless.) So in order to sell these properties, prices have to come way down. This is a painful process of recognizing an ugly real estate reality: There are far more houses than buyers. The result? Sales of repossessed properties were on average done at prices 71.5% lower than where the houses were originally valued. That means the average price for a house that was originally sold for €100,000 in say, 2006, repossessed and then sold during the first half of 2013, would have brought a price of €28,500.

    Spain's jobless numbers up in October, no relief in sight (Reuters) - Spain's registered jobless rose in October as tourist season hires were laid off, suggesting an expanding economy has yet to make inroads into an unemployment rate EU authorities expect to stay above 25 percent through 2015. The number of registered jobless rose by 87,028 people, leaving 4.81 million out of work, adjusted data from the Labour Ministry showed on Tuesday. The increase was especially pronounced in the services and agriculture sectors. Year on year, jobless numbers fell for the first time since May 2007, data the government said showed the economic recovery was gaining a foothold. Gross domestic product rose for the first time in ten quarters in the three months to September, albeit by just 0.1 percent. Spain's economy has contracted around 7.5 percent since 2008, when the bursting of a decade-long property bubble left millions out of work and sent domestic demand into freefall. The rebound, led by the export sector, is expected to be shallow, due in part to the stubbornly high unemployment as well as one of the euro zone's highest deficits. The Ministry's monthly jobless data uses a different methodology to the National Statistics Institute's quarterly survey. The latter, considered a better guide to the total number of people out of work, showed unemployment at 26.0 percent in the third quarter.

    Jobless young Italians face life on the black market - Finding a job in Italy is hard enough, but it's only part of the battle. Many, especially the young, can find work only "on the black" - employed in the shadow economy, without a contract or the rights that go with it. "If you work without a contract, you can't have lots of normal things like a new house because the bank doesn't give mortgages without a contract," she says. "You can't spend money on normal things because you don't know where you are going to be tomorrow." Continue reading the main story A black job won't give her a reference for her next step up the career ladder, and she doesn't feel she can start a family without more security. She says more than half her friends are in a similar position, and the only way out for her is to emigrate. Unpaid taxes The dire position of Italy's young in the job market was highlighted in August, when the rate of unemployment among 18 to 24-year-olds hit a record high of 40.1%. It's not clear how many young people are working informally, but Italy's black economy is known to be large.

    Italian banks near saturation point on government debt (Reuters) - Italian banks are near saturation point after two years spent frantically buying their own government's bonds, forcing the Treasury to find alternative investors at home and abroad to finance a 2-trillion euro debt. Lenders' ability to soak up yet more Italian sovereign debt depends largely on the European Central Bank - which in turn says Italy is crucial to the fate of the entire euro zone. In the coming year the ECB will make strict health checks on banks across the bloc, including a provisional 15 in Italy. It must also decide whether to roll over billions of euros in cheap long term loans which the banks have used profitably to accumulate government bonds, but fall due in early 2015. Both events will determine how much domestic banks can keep up their support for the Treasury which was vital when the euro zone's third biggest economy teetered on the brink of a Greek-style debt crisis in 2011 and foreign investors fled. Much is at stake. The ECB has made clear that Italy must tackle its debt and economic problems for the greater good.

    Greece Resumes Talks With Lenders Over Budget Gap - The return to Athens by inspectors from the European Commission, European Central Bank and International Monetary Fund, which have extended Greece two bailouts worth 240 billion euros ($323 billion) over the past three years, comes as political and social tensions rise over the austerity imposed and tolerance in the recession-hit country wears thin.  Labor unions have called a general strike for Wednesday, the fifth this year, to protest the government’s “catastrophic, dead-end policies.” With unemployment hitting 28 percent and living standards slashed, the fragile coalition of Prime Minister Antonis Samaras appears increasingly divided over the punishing economic program being demanded by creditors.  A dispute over the fiscal gap for 2014 — which Greece calculates at €500 million and the three lenders put at over €2 billion — almost derailed the resumption of negotiations. Troika officials only confirmed their visit at the last minute after a flurry of speculation about possible cancellation. A European Commission spokesman, Simon O’Connor, said the visit was finalized after Athens sent additional budget data to Brussels late on Friday.  Although eager to clinch new rescue funding, government officials are insisting that Greeks have been pushed to their limits.

    Greek Strikes Halt Government, Transport After Return of Troika - Government offices were shut, urban transport was disrupted and ferries remained in dock across Greece today as workers respected a general strike and protesters marched on parliament in Athens. Police estimated that as many as 11,500 demonstrators marched through the center of the capital in driving rain, shouting slogans against austerity measures tied to Greece’s 240 billion euros ($324 billion) in bailouts, a day after representatives from the European Commission, the International Monetary Fund and the European Central Bank resumed their inspection of the country’s progress in meeting the terms of the rescue. Workers from the country’s main labor unions stayed off the job in their fourth general strike of the year, and civil-aviation workers held a three-hour work stoppage at midday, prompting flight delays and cancellations. Finance Minister Yannis Stournaras said late yesterday that he had a “general discussion” with the troika of officials from the euro area and the IMF. The country’s budget plan is realistic and the government is trying to convince the troika to give Greece a positive review, Stournaras said.

    Strikes hit Greece, Portugal over eurozone austerity cuts - Greek workers held a general strike and Portuguese rail employees disrupted train traffic on Wednesday in renewed protests over austerity measures cutting painfully into wages. The stoppages underlined the public anger in peripheral EU countries over budget belt-tightening imposed to rein in public debt and stabilise the eurozone. The general strike in Greece occurred as EU and IMF auditors worked in Athens to finalise the recession-hit country's next budget, looking to eliminate a fiscal shortfall of two billion euros ($2.7 billion), most likely through even more unpopular cuts. Wednesday's strike, the latest this year organised by the country's main unions, shut down the civil service as well as train and ferry services nationwide. Hospitals operated on reduced staff and several flights were cancelled because of work stoppages by civil aviation staff. Greek journalists also staged a five-hour walkout.The anger over austerity was also seen in Portugal, where a 24-hour strike by rail workers over planned pay cuts left fewer than a third of trains running. The stoppage was "a clear response by the workers" to a proposal in the 2014 budget to slice "30 to 40 percent" from wages, said the head of the Federation of Transport and Communication Unions, Abilio Carvalho. In the Romanian capital Bucharest, 5,000 teachers staged a march protesting their "beggar's life" of low pay.

    Greek police storms TV building as Troika visits - Riot police stormed the former Greek state television headquarters in Athens yesterday (7 November) and evicted dozens of journalists who were fired five months ago, ending a protracted sit-in against the broadcaster's closure. The government took ERT off the air in June to meet a target for public sector job cuts set by foreign lenders, triggering a political crisis that prompted one party to quit the ruling coalition. Police carried out the pre-dawn eviction as the so-called Troika inspectors from European Union and International Monetary Fund lenders were in Athens reviewing the progress it made in meeting the targets of its multi-billion bailout before disbursing more funds. "I was on air when riot police stormed into the studio and ordered me to shut the microphones and leave," said Nikos Tsibidas, spokesman for ERT's radio workers union. "I've never seen anything like this before; it's barbaric and indicative of the kind of democracy we have in this country."

    Czechs Play Koruna Hardball as Intervention Triggers Record Drop - The Czech central bank’s return to currency interventions after 11 years heralds a push for a weaker koruna to ward off deflation and kick-start the economy. The koruna plunged 4.4 percent to 26.982 against the euro yesterday, its biggest-ever drop and the most in the world on the day, after the central bank sold the currency in the foreign-exchange market. Governor Miroslav Singer pledged to keep intervening “for as long as needed” to spur inflation, setting a target of “near” 27 per euro, a level the koruna last traded at in 2009.  “The central bank signaled willingness to play hardball in its foreign-exchange policy,” Luis Costa, an emerging-market strategist at Citigroup Inc., said by e-mail from London. “For the moment, I believe the ‘ideal level of 27’ will be met.” Unlike interventions aimed at strengthening the exchange rate, which require sales of foreign currencies that can deplete foreign reserves, the Czech central bank is printing more koruna to drive down its value. The money supply increase may lead to the higher inflation rates that Singer is pursuing. “The power is unlimited,” Guillaume Tresca, a Paris-based strategist at Credit Agricole SA, wrote by e-mail yesterday. “They can theoretically print as much koruna as they want.”

    "France is Not a Cash Cow"; Riots Over Ecotax Continue; Is Anyone Happy? - French farmers are still not happy even though French president Francois Hollande decided to roll back the "ecotax" on large trucks following riots last week. Riots continued on Saturday, after the announced rollback. For the prelude to this story please see, Hollande's Tax Everything Plan Blows Sky High With Riots by Farmers. French Prime Minister Jean-Marc Ayrault on Tuesday indefinitely suspended the introduction of a green tax on trucks following riots at the weekend in the Brittany region. The move comes three days after a protest by hundreds of food producers, artisans and distributors in the western Brittany region ended in the worst riots in the area in years.The "indefinite rollback" on the "ecotax" (an allegedly environmentally friendly commercial transport, tax on French and foreign vehicles weighing over 3.5 tonnes) was not acceptable to the farmers, artisans and distributors. They demanded a permanent rollback.   Riots resumed on Saturday prompting French riot police use tear gas on anti-tax protesters. French riot police fired tear gas at thousands of demonstrators in north-west France on Saturday, after some protesters hurled stones and iron bars at them in a rally against a controversial green tax and layoffs.Protest organisers said 30,000 people, including hauliers, fishermen and food industry workers, had gathered in the town of Quimper in Brittany to demonstrate against an environmental tax on trucks and layoffs, even though the government had earlier in the week suspended the application of the so-called ecotax.

    French government scrambles to contain ecotax revolt - The French government scrambled Tuesday to contain anger over a proposed environmental tax as protesters continued to destroy radars set up to help collect the levy, in a revolt that shows no sign of abating. Protests over the new "ecotax" on trucks, which aims to encourage environmentally friendly commercial transport, kicked off in earnest last month in the northwestern region of Brittany and eventually forced the government to backtrack and suspend the levy. Wearing red bonnets, the symbol of a 17th-century anti-tax campaign in Brittany, the protesters -- small business owners, fishermen and food industry workers -- marched in big, sometimes violent, rallies in the region, which has already been crushed by job cuts and would be hard hit by the new tax. Some destroyed radars set up in advance along roads to screen passing vehicles and determine whether they need to pay the tax, which would apply to French and foreign vehicles carrying goods weighing over 3.5 tonnes. Under pressure to rein in its state deficit, France's Socialist government has announced about 3 billion euros ($4.1 billion) in tax increases for next year, and protests in Brittany come on top of wider opposition to tax hikes.

    Under Strain, France Examines Its Safety Net - The pervasive presence of government in French life, from workplace rules to health and education benefits, is now the subject of a great debate as the nation grapples with whether it can sustain the post-World War II model of social democracy. The spiraling costs of cradle-to-grave social welfare programs have all but exhausted the French government’s ability to raise the taxes necessary to pay for it all, creating growing political problems for President François Hollande, a Socialist. The nation’s capability to innovate and compete globally is being called into question, and investors are shying away from the layers of government regulation and high taxes. But on the streets of this midsize city 325 miles southeast of Paris, the discussion is not abstract or even overtly political. Conversations here bring to life how many people, almost unconsciously, tailor their education, work habits and aspirations to benefits they see as intrinsic elements of their lives.  “You cannot take away guns from Americans, and in the same way you cannot take away social benefits from French people,”

    S&P cuts France's credit rating to 'AA' - Standard & Poor's Friday cut France's credit rating by one notch to AA, dealing a blow to President Francois Hollande's efforts to turn around the euro zone's second-largest economy. "We believe the French government's reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France's medium-term growth prospects, and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures," S&P said in a statement Friday morning. The rating agency shifted its outlook for the rating to stable from negative, which implies the probability of an upgrade or a downgrade is below one in three. S&P stripped France's AAA credit rating in January 2012 and since then, its two main rival agencies Moody's Investors Service and Fitch Ratings have followed suit. S&P's downgrade comes at an awkward time for Mr. Hollande as his government pushes a difficult budget through parliament. The rating agency's analysis highlights the limits of Mr Hollande's fiscal policy: too much tax. The government argues it has shifted to spending cuts for next year's budget, but it is still relying on some tax increases. And even those small increases have sparked protests and pushed the government into a series of U-turns. S&P said the government's ability to handle its public accounts is constrained by the recent choices to increase "already-high" tax levels. Moreover, the rating agency said the government has showed an "inability to significantly reduce total government spending."

    France’s ‘AA’ Hollande pays price for kowtowing to EMU deflation madness - Standard & Poor’s downgrade of France to AA is an indictment of Euroland’s entire contraction regime. Yes, S&P says France has bottled it on reforms. Francois Hollande’s patchwork of measures – losing momentum anyway since early 2013 – will not be enough to pull the country out of sclerosis. It warns too that France is on borrowed time with a state sector over 56pc of GDP, now higher than Sweden, but without Swedish labour flexibility and free enterprise. We all know this. But the deeper critique is that France has been set an impossible task. 1) Perma-slump is playing havoc with public finances, causing the budget deficit to stay above 4pc of GDP. “We believe lower economic growth is constraining the government’s ability to consolidate public finances,” it said. France’s heroic fiscal squeeze of 1.8pc of GDP last year – in order to comply with EMU demands – was at best self-defeating, and arguably destructive. All France got was a double-dip recession. Some 370,000 people have lost their jobs. There is a proper therapeutic dose of fiscal austerity, and it should always be offset by monetary stimulus. Both rules were violated.

    Ideological Ratings - Paul Krugman -- So S&P has downgraded France. What does this tell us?  The answer is, not much about France. It can’t be overemphasized that the rating agencies have no, repeat no, special information about national solvency — especially for big countries like France. Does S&P have inside knowledge of the state of French finances? No. Does it have a better macroeconomic model than, say, the IMF — or for that matter just about any one of the men and women sitting in this IMF conference room with me? You have to be kidding. So what’s this about? I think it’s useful to compare IMF projections for France with those for another country that has been getting nice words from the raters lately, the UK. The charts below are from the WEO database — real numbers through 2012, IMF projections up to 2018. I’m sorry, but I think that when S&P complains about lack of reform, it’s actually complaining that Hollande is raising, not cutting taxes on the wealthy, and in general isn’t free-market enough to satisfy the Davos set. Remember that a couple of months ago Olli Rehn dismissed France’s fiscal restraint — which has actually been exemplary — because the French, unacceptably, are raising taxes rather than slashing the safety net. So just as the austerity drive isn’t really about fiscal responsibility, the push for “structural reform” isn’t really about growth; in both cases, it’s mainly about dismantling the welfare state.

    Euro zone Sept retail sales fall more than expected (Reuters) - Euro zone retail sales fell more than expected in September, data showed on Wednesday, as shoppers held back with purchases amid a slow economic recovery weighed down by record high unemployment and tight access to credit. The volume of retail trade fell 0.6 percent on the month after a revised 0.5 percent rise in August, the EU's statistics office Eurostat said. Analysts polled by Reuters expected only a 0.4 percent decline. Sales of both food and non-food products fell and the volume of sales of automotive fuels was flat on the month. Compared with the same period last year, September retail sales were up 0.3 percent, following three straight months of declines, the data showed. Domestic demand in the euro zone is stifled by the bloc's longest recession since the creation of the euro in 1999. It is also dented by record high unemployment of 12.2 percent and uncertainty over when the economy will pick up more strongly. The decline in retail sales was especially significant in the southern Europe, with Portugal recording an all-time low with a 6.2 percent slump on the month and Spain's 2.5 percent decline was the biggest since April 2012. Slovenia, now at risk of needing international financial assistance in case it fails to fix its banks and reform the economy, saw a 4.0 percent fall month-on-month in sales in September, the biggest decline since February 2009.

    Draghi Cuts ECB Rate to Fight ‘Prolonged’ Inflation Weakness - European Central Bank President Mario Draghi warned the euro area risks a “prolonged period” of low inflation as the bank cut its benchmark interest rate to a record. Pledging to keep borrowing costs low for an “extended period,” Draghi said weakening price pressures justified the ECB’s surprise decision to cut its main refinancing rate today by a quarter point to 0.25 percent. Just three of 70 economists surveyed by Bloomberg News anticipated the action even after inflation faded to its slowest in four years. “Our monetary policy stance will remain accommodative for as long as necessary,” Draghi told reporters in Frankfurt. Officials will provide more detail on the inflation outlook at next month’s meeting, he said. The ECB now has just one more quarter-point cut left before its main rate reaches zero, increasing the likelihood of unconventional tools such as a negative deposit rate if prices slow further or the economic recovery stalls. Euro-area inflation is less than half the ECB’s ceiling and unemployment is at the highest level since the currency bloc was formed in 1999.

    European Central Bank Cuts Main Rate - — In an unexpectedly swift reaction to economic warning signals, the European Central Bank cut its benchmark interest rate to a record low on Thursday, moving to head off what some economists fear could be a long period of stagnation like the one that has afflicted Japan. The cut in the E.C.B.'s main rate to 0.25 percent from 0.5 percent took many analysts by surprise, and seemed intended to reinforce a vow last year by Mario Draghi, the bank’s president, to do “whatever it takes” to preserve the euro zone. The central bank was reacting to a sudden drop in euro zone inflation, which fell to an annual rate of 0.7 percent in October, well below the bank’s official target of about 2 percent. The decline raised the specter of deflation, a sustained fall in prices that can destroy the profits of companies and the jobs they provide. Mr. Draghi insisted that the E.C.B. was not expecting such a catastrophic situation. “If we mean by deflation a self-fulfilling fall in prices across a very large category of goods, and across a very significant number of countries, we don’t see that,” he said at a news conference. “I don’t think it is similar to Japan.” But by moving sooner than expected, Mr. Draghi and the other 22 members of the E.C.B. Governing Council answered critics who have said they are too divisive and reluctant to stimulate the economy as forcefully as the United States Federal Reserve or the Bank of England, neither of which are accountable to a group of individual countries that often have differing economic agendas.

    ECB cuts rates to new low, ready to do more if needed - (Reuters) - The European Central Bank cut interest rates to a record low on Thursday and said it could take them lower still to prevent the euro zone's recovery from stalling as inflation tumbles. The move took financial markets by surprise - the euro fell sharply in response while European shares rose. Underlining its support for the euro zone, the ECB said it would prime banks with as much liquidity as required until mid-2015. A Reuters poll of economists also saw the ECB offering banks a new round of cheap money within six months. The 23-man Governing Council had faced intense pressure to act after a shock slump in euro zone inflation to 0.7 percent in October, far below the ECB target of just under 2 percent. The ECB cut its main refinancing rate by 25 basis points to 0.25 percent. It held the rate it pays on bank deposits at zero and cut its emergency borrowing rate to 0.75 percent from 1.00 percent. Draghi stressed the ECB still had room to act if needed. "We have a whole range of instruments to activate before reaching the lower bound ... in principle we could even cut further the interest rate," he told a news conference.

    In Stunning Move, ECB Cuts Rates By 25 bps, Euro Plunges - Perhaps it is not surprising that with the absolute majority of economists and strategists, or 67 of 70, predicting no rate cut by the ECB, this is exactly what the ECB just did, when in a stunning move it cute rates for both the main refi rate and the marginal lending facility by 25 bps, to 0.25% and 0.75% respectively. And there is your reaction to Europe's encroaching deflation. From the ECB: At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.25%, starting from the operation to be settled on 13 November 2013.The interest rate on the marginal lending facility will be decreased by 25 basis points to 0.75%, with effect from 13 November 2013. The interest rate on the deposit facility will remain unchanged at 0.00%.  The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today. The Euro will need a bigger chart to show just how far it tumbled as a result of the stunner:

    ECB Unexpectedly Cuts Rate to .25%; Draghi Promises Loose Policy for "Extended Period", "Ready to Consider All Instruments"; What Debasement...- The ECB did the unexpected today, cutting the interest rate to .25% from .50%. Here is the ECB press release.  At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

    1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.25%, starting from the operation to be settled on 13 November 2013.
    2. The interest rate on the marginal lending facility will be decreased by 25 basis points to 0.75%, with effect from 13 November 2013.
    3. The interest rate on the deposit facility will remain unchanged at 0.00%.
    Bloomberg has the ECB President Draghi News Conference Text. Here are a few key snips.
    • We decided to lower the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 0.25 percent and the rate on the marginal lending facility by 25 basis points to 0.75 percent. The rate on the deposit facility will remain unchanged at 0.00 percent.
    • Our monetary policy stance will remain accommodative for as long as necessary.
    • The Governing Council expects key ECB interest rates to remain at present or lower levels for an extended period of time.  
    • We are ready to consider all available instruments, and, in this context, we decided today to continue conducting the main refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 6th maintenance period of 2015, more precisely on July 7, 2015.

    ECB rate cut: the analyst reaction - The EBC cut rates unexpectedly on Thursday. While there was market consensus that easing was coming, there was little agreement on the form in which the easing would take place. A cut was seen as stifling the ECB’s future flexibility by taking it to the lower bound and flirting dangerously with negative rates, while further LTROs were seen as potentially constrained by AQR-related stigma.But the big news from Draghi’s press conference, however, is that the ECB is clearly not afraid of the former, and not necessarily scared of the latter either.The ECB ended up cutting the main refinancing rate by 25 basis points, whilst reconfirming its commitment to fixed-rate tender full allotment in its MROs and special term refinancing operations, and its three-month LTROs. The analyst community immediately picked up on the implications for euro cross rates. From HSBC (our emphasis):The ECB’s surprise decision to lower interest rates will weaken the EUR, and this most likely is exactly what the central bank wants. Net exports have been the major driver of GDP growth over recent quarters, and the rise in EUR was increasingly threatening this engine of growth. Meanwhile, a lower EUR will also help push up inflation through higher import costs. The ECB will hope this double-whammy of the exchange rate effect on growth and inflation will help curtail the deflation threat.

    About that ECB interest rate cut - Consumer price inflation in the Eurozone has been below the target of 2% and falling for quite some time. But until now, the ECB has been sitting on its hands. Inflation some distance below target didn't appear to bother it - most likely because the (unbelievable) forecasts for Eurozone recovery created inflation expectations in the 1.5 - 2% range, so it saw no need to act on what was assumed to be a temporary problem.So why did the ECB, in a complete reversal of its previous stance, suddenly cut the refi rate to 0.25%? Well, Eurozone consumer price inflation has touched a record low of 0.7%, driven by falling energy prices and stagnant prices in other sectors. But inflation expectations are still where they were before, based on expectation of a strong Eurozone recovery.Here is a Eurostat chart showing Eurozone inflation rates by country as of September 2013:And Reuters reports that German inflation has unexpectedly fallen to 1.2% in October. Well, well. German inflation is below target and falling. So the ECB is doing what the ECB does - responding to German monetary indicators. I suppose this is inevitable, since Germany is the dominant economy in the Eurozone. But it just shows how impossible a one-size-fits-all monetary policy really is where there are such disparities of size and competitiveness between countries in a monetary union. Monetary policy is inevitably driven by the needs of the largest, even if it is actually damaging to the smallest.

    The Bank Guarantee That Bankrupted Ireland - Ellen Brown - The Irish have a long history of being tyrannized, exploited, and oppressed -- from the forced conversion to Christianity in the Dark Ages, to slave trading of the natives in the 15th and 16th centuries, to the mid-nineteenth century "potato famine" that was really a holocaust. Today, Ireland is under a different sort of tyranny, one imposed by the banks and the troika -- the EU, ECB and IMF. The oppressors have demanded austerity and more austerity, forcing the public to pick up the tab for bills incurred by profligate private bankers. The official unemployment rate is 13.2 percent -- up from 5 percent in 2006 -- and this figure does not take into account the mass emigration of Ireland's young people in search of better opportunities abroad. At first, the Irish accepted the media explanation: these draconian measures were necessary to "balance the budget" and were in their best interests. But after five years of belt-tightening in which unemployment and living conditions have not improved, the people are slowly waking up. They are realizing that their assets are being grabbed simply to pay for the mistakes of the financial sector. Ireland was the first European country to watch its entire banking system fail. Unlike the Icelanders, who refused to bail out their bankrupt banks, in September 2008 the Irish government gave a blanket guarantee to all Irish banks, covering all their loans, deposits, bonds and other liabilities.

    Euro zone's Ireland gets green light for bailout exit - (Reuters) - Three years after going cap in hand to international lenders, Ireland got the green light on Thursday to step out on its own as the first euro zone country to exit its bailout program. The European Commission, European Central Bank and International Monetary Fund signed off on the last part of the 85 billion euro ($114 billion) aid program, paving the way for Ireland - which has met all major targets - to complete it by the end of the year. It is a much-needed success story for Brussels, which needs to show its austerity medicine works, but may not be a precedent for other bailed out euro zone states as Ireland had few of the structural problems facing Greece or Portugal. "This is a significant day that many thought, and some feared, would never be reached," Noonan told reporters. "There are difficulties and we will continue, but the responsibility is being passed back now to the Irish government." The main issue remaining is whether the government will take out an insurance policy of asking for a precautionary credit line when the bailout ends. It has indicated it may go it alone as it has funding into 2015 and Finance Minister Michael Noonan said it was still an "open question".

    Surveys point to accelerating growth - The service sector purchasing managers' index comfortably exceeded expectations, rising to a record 62.5 in October from 60.3 in September. Activity is expanding at its fastest rate since May 1997. Taken together with the construction and manufacturing surveys, Markit says the numbers are consistent with GDP growth of more than 1% in the final quarter of 2013. This is their assessment: “The UK economic recovery moved up a gear again in October, with the PMIs indicating record growth of output and employment. The all-sector PMI, measuring business activity across the UK private sector economy, hit an all-time high of 61.5 in October, up from 60.2 in September.“Historical comparisons of the PMI against gross domestic product suggest the latest survey data are consistent with a 1.3% quarterly rate of GDP growth, up sharply from previous quarters. The surveys also indicate that the rate of private sector job creation is currently running in excess of 100,000 per quarter. Manufacturing, services and construction all continued to see very strong rates of expansion, pointing to an ongoing broad-based upturn. However, it is the services sector which – due to its sheer size – is the major driving force behind  economic growth at the moment."

    Sometimes Humor Is The Best Way To Tell A Tragic Story – Ilargi - Some things are simply so funny that they can’t help showing us hidden truths. Fumbling through the Guardian’s webpages on Tuesday, I found what I find is a fine example of just that. Plus, in the very same edition, a bunch of articles that provide an equally fine perspective. Let’s start with that perspective. You may have noticed that the domestic and international press have recently published some remarkably positive numbers for the UK economy. On the other hand, you may also have read my October series on Britain’s energy position, which is not so positive: in fact, it’s outright desperate. Moreover, the current leadership manages to come up with all the wrong answers, so Brits will be forced to learn what lies beyond desperate. But not today. Today is bubble time, in credit and in confidence. The Wall Street Journal quotes the European Commission: EU More Than Doubles U.K.’s 2013 Growth Forecast In its autumn forecast, the European Union’s executive arm said the economy of the U.K. the largest non-euro-zone country in the EU would grow 1.3% in 2013, considerably higher than the 0.6% growth it projected in May  The expectation is for consumers to dip into their savings and continue spending with the outlook for real wage growth to turn positive at the end of 2014 and into 2015,” the commission said. “However, the debt burden of households remains a distinct risk to private consumption.” While the Guardian quotes Britain’s National Institute of Economic and Social Research: UK growth to pick up in 2014 – NIESR The (NIESR) forecasts growth will come in at 1.4% this year and quicken to 2% next year. Both those forecasts are up by 0.2 percentage points since NIESR’s last outlook was published in August.

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